WTI pulls back to low $71.00s, but still within recent ranges, as markets await more Omicron info

Front-month futures of the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, slipped back from earlier session highs close to $73.00 on Monday and currently trade in the low-$71.00s. Despite finding some support at the $71.00 level in recent trade, prices are still down more than 50 cents on the day.

WTI prices continue to trade with the $70.50-$73.00ish ranges established towards the back end of last week, so Monday’s losses should be viewed in that context and not read into too much. Indeed, as markets await more clarity about the impact of Omicron on the global demand picture, rangebound trade makes sense. On which note, in its latest Short-Term Energy Outlook (STEO), OPEC said it expected the impact of the Omicron Covid-19 variant to be mild as the world continues to adapt to the presence of the pandemic. Meanwhile, the group left its oil demand growth forecasts for 2021 and 2022 unchanged at 5.65M barrels per day and 4.15M barrels per day respectively.

In terms of other crude oil-relevant news, Iranian nuclear negotiators sounded positive on the prospect for progress in negotiations with Western powers on a return to the 2015 nuclear accord. Western nations involved in the talks (UK, France, etc.) are yet to reciprocate this optimism, market commentators have noted. But if substantial progress were to be made, this would bring closer the prospect of a return of millions of barrels per day in Iranian crude oil exports to global markets as US sanctions are lifted.

This may compound worries that some in the industry have about global market oversupply in 2022. Indications from OPEC+ oil ministers is that the cartel will again agree to press ahead with a 400K barrel per day output increase from February when they meet at the start of the new year. According to analysts at Commerzbank, “the oil market risks facing a sizeable oversupply in the first quarter of 2022… We, therefore, envisage potential setbacks for the oil price in the coming weeks”.