WTI continues impressive bounce, moves aboe $72.00 as analysts call Friday’s drop overdone

Oil prices continue to press higher, with front-month WTI futures now up more than $4.0 on the day and back in the $72.00s, meaning nearly 50% of Friday’s steep decline on Omicron variant concerns has now been unwound. To get above the 50% Fibonacci retracement of Friday’s slump, oil prices would need to remain the $73.00 level, which might be a bit of a stretch given how far prices have already come on the day. Beyond $73.00 to the upside, there is resistance around $75.00, while the 200-day moving average at $70.00 might offer decent support.

Oil prices surged at the Monday reopen of trade, with many market participants of the view that last Friday’s drop was overdone and exacerbated by thin liquidity conditions at the time due to the Thanksgiving holidays in the US. The latest global developments in response to Omicron (international travel bans) do justify a short-term drop in oil prices owing to expected lower jet fuel demand. But analysts reasoned that not enough is yet known about the new variant (like its vaccine resistance, transmissibility, associated severity of illness) to project a significant long-term hit to global oil demand.

That seemed to be the view of energy/oil officials from Saudi Arabia and Russia. The energy minister of the former was quoted on Monday saying he was not worried about the Omicron variant, while the Russian oil minister said he didn’t yet see the need for urgent action. The OPEC+ Joint Technical Committee will meet on Wednesday, followed by OPEC+ oil ministers (when output policy will be decided upon) on Thursday. Elsewhere this week, US inventory numbers will be watched as usual on Tuesday and Wednesday, while talks between JCPOA signatories (Iran, EU nations and the US) will restart discussions on returning to the 2015 nuclear deal. Strategists are not particularly hopeful that a deal that would allow Iranian oil exports to return to global markets will be struck.