- WTI recently slipped under $75.00 to one-week lows, as traders fret over surging Omicron infections and a potential hospitalisation surge.
- Rising OPEC+ and US output also weakens the bull case, with OPEC+ expected to agree to higher output this week.
- The 50DMA may thus continue to act as a significant area of near-term resistance.
Early optimism in oil markets that saw front-month WTI future at one point surpassing the $76.00 during early European trade has given way upon the arrival of US markets participants, with WTI having dropped under $75.00 recently. The main benchmark for US light crude oil now trades at its lowest since last Monday’s surge below key resistance in the $75.00 area and is down about 75 cents on the day (roughly 1.0%). The $75.00 area has so far failed to offer support, implying that oil may see further (technically driven) selling as short-term bears look for a test of the $74.00 level.
In terms of the major themes being cited as driving oil market price action at the start of the week and the first trading session of 2022, there is some focus on surging Omicron infection rates. As cases hit record highs in the UK, Europe and US, investors are bracing for a surge in hospitalisations. Even though the scientific community seems to agree that Omicron is roughly three times less likely to result in hospitalisation (per infection), its high transmissibility means the risk of hospitals filling up again remains worth considering. UK PM Boris Johnson warned on Monday that UK hospitals face considerable pressure in the coming weeks and options (i.e. the potential for tougher restrictions) are being kept under review.
This could be weighing on prices this morning. In terms of oil-specific news, there was some focus on news of a 200K BPD outage in Libya, which will last one week, due to maintenance, but this hardly matters in the grand scheme of things, hence why it didn’t offer prices lasting support. Oil markets are not expected to be as tight as they were a few months ago as OPEC+ and the US continue to raise output. Regarding the former; more OPEC+ sources said the cartel will stick to its 40K barrel per day per month output hike plans when they meet this week, meaning 400K more barrels per day as of February. The group meets on Tuesday to discuss output policy, after agreeing on Monday to appoint Kuwait’s Haitham Al Ghais as its new secretary-general. This appointment isn’t expected to have any bearing on policy.
Meanwhile, last Friday’s Baker Hughes rig count showed US oil and gas firms adding rigs for a 17th consecutive month (a record), while an EIA report showed US output rising 6% to just under 11.5M barrels per day in October, as US output recovered from hurricane outages in September. With the large oil market deficits experienced in mid-2021 seemingly now a thing of the past the case for WTI to return to its October highs in the mid-$80s is weaker. For now, that means it may be a struggle for WTI to get above its 50DMA, which has been offering solid resistance over the last week or so.