WTI consolidates the day's worst drop in 3-months

West Texas Intermediate, WTI,  crude oil dropped to the cheapest level in more than three months on Tuesday. There are worries over rising Covid-19 infections and concerns that the new variant will be resistant to the current vaccines. The Omicron variant is a fluid situation and only time will tell if this will pass without forcing the reimplantation of new quarantine measures, weighing on the demand side case for higher oil. 

At the time of writing, WTI spot is trading down some 4.6% on the day at $66.78 after sliding from a high of $71.18 to a low of $64.45. The sell-off occurred on Tuesday following warning comments from the chief executive of vaccine developer Moderna who told the Financial Times that existing vaccines may not be as effective against the omicron variant.

"A remark in the Financial Times made by the CEO of a major pharmaceutical company is generating renewed selling pressure: he believes that the current vaccines will be less effective against the new variant of the virus, meaning that new vaccines will need to be developed. This, and then making such modified vaccines available, will take months in his view. This is raising concerns about far-reaching mobility restrictions to combat the "Omicron" variant," Commerzbank analyst Carsten Fritsch explained.

Meanwhile, The Federal Reserve was an additional risk that sent the greenback higher on the day due to the Feds chairman, Jerome Powell's hawkish testimony to the US Senate.  Powell conceded inflation can no longer be considered “transitory” as the risks of persistently higher inflation have grown.

''Despite the market uncertainty caused by the emergence of the Omicron variant of COVID, Powell indicated it may be time to further curb the rate of bond purchases,'' analysts at ANZ bank explained.

''While this form of monetary policy tightening had previously been announced, Powell now says the bond purchase programme may need to end sooner than previously signalled. He stated that the economy is very strong and inflationary pressures are strong therefore it is appropriate to consider wrapping up the taper of asset purchases a few months early, and this will be discussed at the next Fed meeting. This indicates the bond purchase programme may be wrapped up by March 2022 with the final purchases occurring in February.''

In other news, supply is on the rise, with OPEC+ raising quotas by a scheduled 0.4-million barrels per day on Wednesday.  '' It already postponed its technical meetings to allow more time to assess the impact of Omicron. However, it remains unconcerned, with both Saudi Arabia and Russia waiting for more information. The official ministerial meeting is still scheduled for 2 December,'' analysts at ANZ bank explained. ''However the release of 60-million barrels of strategic reserves from the United States and five other nations and concerns over the impact of the omicron variant in a quarter where demand is already seasonally weak may convince the group to forgo adding supply,'' Reuters wrote in a note.