Oil posted a weekly decline after a volatile few days that saw traders grow more concerned about the effect the Omicron variant of SARS-CoV-2 would have on demand and tighter monetary policy.
West Texas Intermediate for January delivery fell as much as 3.4 percent on Friday to briefly trade below US$70 a barrel, but closed the day 2.1 percent down at US$70.86 a barrel.
It ended the week losing 1.13 percent as daily COVID-19 cases in the UK jumped to a record, while hospitalizations surged across the US. Prices also weakened after the US dollar rose in response to impending steps by the US Federal Reserve and other central banks to tame inflation.
Brent crude for February delivery lost 2 percent to US$73.52 a barrel, down 2.17 percent from a week earlier.
“We need to be ready for COVID headlines to continue driving the oil market on a day-to-day basis, at least until the remainder of this winter,” Raymond James & Associates Inc alanlyst Pavel Molchanov said. “Right now, COVID is the number one variable for demand on a daily basis.”
Signs are also emerging of softening oil demand in Asia, while the International Energy Agency this week said that the global market had returned to surplus as Omicron impedes travel.
The weakness is showing up in the market’s structure, with Brent flicking in and out of a bearish contango, which signals oversupply.
“Crude oil is struggling amid raised concerns about the fast-spreading Omicron virus and its impact on global demand,” said Ole Sloth Hansen, head of commodities research at Saxo Bank A/S in Copenhagen. “Also, unseasonal warm weather in Asia is potentially softening demand for fuels toward heating and power generation.”
The seventh round of Iran nuclear talks concluded in Vienna and are to resume soon.
EU Envoy Enrique Mora said parties have re-established common ground for negotiations, but they have weeks, not months, to revive the 2015 Iran deal.
This week has seen traders contend with conflicting signals on demand and supply. That has caused a generally risk-off attitude in oil markets, leading the aggregate volume of futures contracts to drop over the past two sessions.
Looking ahead, some factors could counter downward pressures.
“We are keeping a close eye on movements in the US dollar and oil market volatility,” Rabobank commodities strategist Ryan Fitzmaurice said. “A move lower in either or both of these factors will likely lead to increased buying from money managers, driving Brent back towards the US$75 mark.”
Additional reporting by staff writer
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