Oil prices rose early on Tuesday for the second day in a row, as traders are cautiously optimistic that the new Omicron COVID variant would not lead to massive lockdowns around the world to the point of severely reducing global oil demand.
As of 10:00 a.m. EST on Tuesday, WTI Crude was up 2.85% at $71.55 and Brent Crude had gained 2.30% to $74.86.
Oil prices had started to rebound on Monday after Saudi Arabia signaled optimism about demand by hiking its official January crude oil selling prices for Asia and the United States—its biggest markets. Amid heightened worry about the course of the pandemic after the emergence of Omicron, Saudi Arabia injected a dose of confidence in markets by raising its official selling price for its flagship Arab Light to a nearly two-year high.
The market was also relieved on Monday that early reports into Omicron have shown milder symptoms, although the variant is thought to be much more transmissible.
“Although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it,” the White House’s chief medical advisor, Dr. Anthony Fauci, told CNN on Monday, but cautioned it was still too early to make sweeping assessments of the severity of the variant. “The signals are a bit encouraging,” he added.
“Investors have begun to recalibrate their assessment of the economic impact of the Omicron, setting aside the worst fears triggered by news of the heavily-mutated variant about 10 days ago,” Vanda Insights said in a note on Tuesday.
“Yesterday’s optimism can quickly turn into gloom again unless scientific evidence confirms that the economic impact of the latest variant is, in fact, negligible. Yesterday’s impressive performance is being followed-through this morning, partly due to a decent jump in Chinese crude oil imports last month,” broker PVM Oil Associates commented on the oil market on Tuesday.
Finally, a stalemate in the Iran nuclear talks is also bullish for the market, with Germany saying on Monday that Iran should return to the talks with realistic proposals that don’t breach previously reached compromises.
By Tsvetana Paraskova for Oilprice.com
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And with a global economy growing at 6.3% this year, the biggest growth rate in the last fifteen years and a robust global oil demand, Brent crude could hit $85 before the end of the year.
Prices were also helped by Saudi Arabia raising the price of its light crude to customers in Asia and the United States thus signalling a vote of confidence in global oil demand.
Other than initial concerns about the Omicron that led to fears of a possible return to lockdown, I am now becoming convinced that there could have been deliberate efforts by vested interests to fan fears about the Omicron as a way to force prices down to help President Biden whose decision to release 50 million barrels from the Strategic Petroleum Reserve (SPR) was ignored by both prices and the market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London