Oil extended declines as the rapid spread of the omicron variant of the virus increased concerns about the outlook for energy demand.
Futures in London fell below $72 a barrel after slipping 2.2% last week. Covid-19 infections are rising from the US to Europe as authorities struggle to tame the spread of omicron. That’s led to some nations placing restrictions on air travel and there are fears that further lockdowns may be implemented, curbing the movement of people and sapping demand for crude and oil products.
The oil market structure is also showing signs of weakness. The prompt timespread for Brent once again flipped into a bearish contango on Monday, indicating oversupply could be on the horizon through early 2022.
Bearish headwinds are mounting for the crude market moving into the holiday period, when thinner trading volumes can exacerbate prices swings. Demand in Asia is softening, central banks are pivoting toward tighter monetary policy to try and rein in rising inflation, and President Joe Biden’s economic agenda saw a setback after Senator Joe Manchin rejected a spending package.
“We can look forward to a week of a lot of volatility,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific. “But it’s dangerous to assume that oil will plunge further from here because OPEC+ is sitting there watching, and they have left themselves the room to react very quickly if they need to.”
Prices
Brent for February settlement lost 3% to $71.30 a barrel on the ICE Futures Europe exchange at 1:07 p.m. Singapore time after declining 2% on Friday.
The prompt timespread for Brent was 1 cent in backwardation, compared with 30 cents at the start of the month.
West Texas Intermediate for January delivery, which expires Monday, slid 3.3% to $68.51 on the New York Mercantile Exchange.
The more active February contract dropped 3.4% to $68.33.
New York state broke a record for new infections and New York City Mayor Bill de Blasio called on the federal government to step up supplies of tests and treatments to the city amid a spike in infections caused by omicron. The Dutch government announced plans to enforce a stricter lockdown, while Germany’s health minister warned of another virus wave caused by omicron.