Oil rises after two-day drop as investors assess demand

Oil rose as traders assessed the outlook for demand amid the rapid spread of omicron.

Futures in London climbed above $72 a barrel in a volatile trading session on Tuesday, having fallen about five per cent over the past two days. The new virus variant 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 a limited demand impact so far. 

Crude’s gains came 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. The oil market got a boost from expectations that there would be a major switch in power consumption toward crude and petroleum products earlier in the year, and natural gas prices in Europe were above $300 a barrel of oil equivalent on Tuesday.

Still, oil has faltered toward the end of the year, in part due to the emergence of the new COVID-19 strain ahead of winter. The oil market structure is flashing bearish signs, indicating near-term over-supply, which may require OPEC+ to act when the group meets next month. 

“A relief bounce is unlikely to drive a major turnaround in sentiment with the Brent prompt spread signaling an oversupplied market” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. 

Prices

  • Brent for February settlement climbed 1.5 per cent to $72.59 a barrel at 12:11 p.m. London time
  • West Texas Intermediate for February delivery rose 1.7 per cent to $69.80 a barrel

The rout across financial markets on Monday was exacerbated by Senator Joe Manchin’s rejection of President Joe Biden’s roughly $2 trillion package. The president spoke to Manchin on Sunday, a conversation that the White House believes left the door open to revive talks on the spending plan, according to a person familiar with the matter.

© 2021 Bloomberg L.P.

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