WTI under pressure, trading below $68.00 as Omicron/lockdown fears batter sentiment

Oil prices are substantially lower on the first day of the week, with front-month WTI futures currently trading lower by more than $2.50 as traders cite worries about the spread of Omicron and associated lockdowns/restrictions. During Asia Pacific trade, WTI fell below the $70.00 level and a key area of support from last week in the mid-$69.00s. The selling pressure has since continued to cascade with WTI recently dipping as low as beneath $67.00, though the US benchmark for sweet light crude oil has since stabilised slightly below $68.00.

The Netherlands announced a return to lockdown on Sunday, putting pressure on its European peers to follow suit. Local newspapers in Italy reported that new restrictions are possible there as well and there is plenty of chatter in the UK about the possibility of further restrictions as government officials refuse to rule anything out. Meanwhile, in the US, health officials are urging Americans to get booster shots, wear masks and reconsider holiday travel plans. The fear is that greater restrictions on people movement, either placed by governments or imposed by individuals on themselves out of caution, will restrict near-term crude oil demand.

Crude oil-specific newsflow hasn’t exactly been supportive either, with the US Baker Hughes weekly rig count number (released on Friday) reaching its highest since April 2020, a lead indicator of higher US output in the coming months. This seems to be contributing to concerns that oil markets will quickly revert to being in a supply surplus versus the supply deficit that supported prices so much over the last year.

From a technical standpoint, things arent very reassuring. The next notable area of support is really just the early December lows in the $62.00s, a further $5.0 or roughly 7.5% drop from current levels. There are a few lows in the $64.00-$66.00 area that could offer some support. But if the bears really want it, there isn't much to prevent a retest of monthly lows. Much will depend on Omicron/lockdown developments over the coming weeks. Politically, countries in Europe, North America and elsewhere in the developed culturally Christian world may find it difficult to lockdown ahead of Christmas on Saturday. But after Christmas day has been and gone, a broad international tightening of lockdowns may soon follow. Monday’s price action seems to reflect this elevated risk.