Oil climbed with equities as traders resumed buying risk assets following a two-day rout.
Futures in New York closed up 3.7 per cent, trading around US$71 a barrel. Crude rallied as U.K. Prime Minister Boris Johnson said he doesn’t plan to impose new restrictions on activities before Christmas. Volatility has surged as the market tries to assess the severity of the new strain’s impact, with price moves amplified by low end-of-year trading volumes.
“Folks are booking their profits or end-of-year losses and just waiting for the restart after the new year,” said John Kilduff, founding partner at Again Capital LLC.
Crude’s daily gains come against the backdrop of surging gas and power prices in Europe, with France even burning fuel oil in a bid to keep the lights on. Earlier this year, the oil market got a boost from expectations that there would be a major switch in power consumption toward crude and petroleum products.
Still, oil’s yearlong rally has faltered this quarter, due in part to the emergence of the new COVID-19 strain ahead of winter. The oil market structure is flashing bearish signs, indicating near-term oversupply, which may prompt OPEC+ to act when the group meets next month.
So far, omicron hasn’t dented oil demand in the U.S., which can be seen in the relative strength of physical markets. Sweet shale crudes this week reached the largest premiums against Nymex oil futures in nearly a year. The gains are driven by U.S. refiners buying supplies to meet increased domestic fuel demand.
The new virus variant is spreading quickly and accounted for 73 per cent of all COVID-19 infections in the U.S. last week, but city traffic in Europe held up over that same period, pointing to limited impact so far on oil consumption despite new restrictions. President Joe Biden will send 500 million free coronavirus tests to Americans’ homes beginning next month and dispatch the military to shore up overwhelmed hospitals.
Prices
- West Texas Intermediate for February delivery rose US$2.51 to settle at US$71.12 a barrel in New York
- Brent for February settlement climbed US$2.46 to settle at US$73.98 a barrel
Meanwhile, the head of Libya’s election commission closed the election committees ahead of Friday’s presidential ballot, adding doubts that the landmark vote will take place as scheduled. The OPEC member country also suspended crude exports from two ports after militias shut down the country’s biggest field days before the election.
Later in the day, the industry-funded American Petroleum Institute will report on weekly changes in U.S. stockpiles, including at the key Cushing storage hub. Analysts surveyed by Bloomberg estimate a crude stockpile decline of 2.5 million barrels last week.
Other oil-market news:
- Major European oil refiner Saras SpA is holding off on expanding output of renewable fuels due to more competition for feedstocks.
- Iran said nuclear negotiations with world powers in Vienna will resume soon after Christmas. A seventh round of talks ended inconclusively on Dec. 17.
- A series of industry blow-ups has seen banks such as ABN Amro Bank NV, BNP Paribas SA and Societe Generale SA cut their role in financing the global trade in natural resources.
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