WTI drops back from earlier session highs, now in $67.00s, as markets await Thursday’s OPEC+ meeting

Oil prices have been pulling back from earlier highs in recent trade. WTI was above $69.00 earlier in the session but now trades in the $67.00s. But WTI is still up more than $2.50 from Tuesday’s sub-$65.00 lows, though amid the recent pullback, prices are only slightly north of neutral on the day.

The presence of the 200-day moving average at close to the $70.00 level seems to have encouraged some selling pressure. Oil prices continue to trade more than $10.00 below last Thursday’s pre-Omicron Covid-19 variant sell-off levels.

Omicron

Uncertainty regarding the new virus strain remains high, but commentary from most global public health officials and vaccine makers (excluding the Moderna CEO on Tuesday) is optimistic that existing vaccines will offer reasonable protection. WHO Chief Scientist Dr Soumya Swaminathan said on Wednesday that she thinks the existing Covid-19 vaccines will still protect against severe disease. Further data on the efficacy of vaccines versus Omicron, its transmissibility and the severity of symptoms will trickle in over the coming days and will remain the major driver of crude oil price action.

OPEC+

Elsewhere, there has been lots of newsflow pertaining to OPEC+; OPEC met on Wednesday ahead of a meeting of the full OPEC+ group on Thursday and, as expected, made no decision on output policy. That decision will come on Thursday and analysts expect the cartel to halt the recent run of output hikes which had been proceeding at a pace of 400K barrels per day per month. Reuters, citing an OPEC+ document, reported on Wednesday that the cartel sees a worsening oil surplus in Q1 2022, with supply outstripping demand by 3.8M barrels per day by March.

Note also smaller OPEC+ oil producers have struggled to keep up with recent output hikes over the last few months; a Reuters survey showed compliance to the output quotas hitting 120% in November. Even in the absence of further output hikes, then, OPEC+ output will still rise in the coming months. In other oil market related news, as signalled by the private weekly inventory data on Tuesday, Wednesday’s official EIA inventory report was bearish, with big buils seen in gasoline and distillate stocks.