Oil prices bounce, but worries over omicron remain

Oil futures bounced Tuesday, taking back some of the ground lost in the previous session’s tumble as investors continue to assess the potential for the spread of the omicron variant to dent demand.

West Texas Intermediate crude for February delivery CL00, 1.28% CLG22, 1.27% rose 94 cents, or 1.4%, to $69.55 a barrel on the New York Mercantile Exchange. February Brent crude BRN00, 1.30% BRNG22, 1.29%, the global benchmark, was up 88 cents, or 1.2%, at $72.40 a barrel on ICE Futures Europe.

Crude tumbled sharply on Monday, but finished off session lows, as European countries imposed lockdowns and considered other restrictions on consumer activity as the omicron variant of the coronavirus that causes COVID-19 spreads rapidly around the world, including in the U.S.

” It is important to remember that it was the collapse in consumer demand due to lockdowns that led to logistics problems in the physical oil markets that sent WTI futures negative last year, so any threat of some similar drop in consumption will result in significant risk-off money flows in the energy space,” said Tom Essaye, founder of Sevens Report Research, in a note.

“Bottom line, oil did rip back off of key support in the mid-$60s yesterday and for now, the ‘OPEC+ put’ remains in play,” he said, referring to the ability of the Organization of the Petroleum Exporting Countries and its allies to keep a lid on output in response to falling prices.

“So as long as lockdown/economic growth fears do not meaningfully rrise, support near yesterday’s lows should hold, and a rebound to the mid-$70s could very well play out in the weeks ahead,” he wrote.

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OPEC+ has been raising output targets in monthly increments of 400,000 barrels a day as it unwinds production cuts imposed last year, drawing the ire of the Biden administration and other consuming countries that have pushed the group to pump more. That led the U.S. and other countries last month to release crude from their strategic reserves.

Meanwhile, OPEC+ compliance with production cuts rose to 117% last month from 116% in October, Reuters reported, meaning that members continue to pump well below the group’s target.

Weakness was also attributed to Democratic Sen. Joe Manchin’s opposition to President Joe Biden’s nearly $2 trillion spending bill. With the Senate split 50-50, his opposition would sink the legislation, but hopes remained among Democrats that elements of the bill could still win passage.