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Futures Movers: Oil prices end lower as traders monitor omicron spread, this week’s Fed decision

Oil prices ended lower Monday, with traders monitoring the spread of the omicron variant of the coronavirus that causes COVID-19, and looking to this week’s Federal Reserve decision on monetary policy for clues on the economic outlook and energy demand.

Prices saw little support after the Organization of the Petroleum Exporting Countries, in its monthly report, said it expected the impact of the omicron variant to be “mild and short-lived.”

In its monthly report, OPEC shifted some expected demand from the current quarter to early 2022 as a result of the omicron spread, but left its outlook for oil-demand growth in 2021 and 2022 unchanged.

“Omicron so far does not look deadly, but there are still lingering concerns about potential oil demand destruction from it,” said Phil Flynn, senior market analyst at The Price Futures Group. U.K. Prime Minister Boris Johnson warned about a “tidal wave” of new infections from the omicron variant and one death, but the “oil market is trying to look beyond it.”

West Texas Intermediate crude for January delivery
CL00

CLF22
fell 38 cents, or 0.5%, to settle at $71.29 a barrel on the New York Mercantile Exchange. February Brent crude
BRN00

BRNG22,
the global benchmark, declined 76 cents, or 1%, to $74.39 a barrel on ICE Futures Europe.

Last week, WTI, the U.S. benchmark, jumped 8.2%, the sharpest weekly gain since a 10% rise in the period ended Aug. 27, according to Dow Jones Market Data. Brent, meanwhile, climbed 7.5%, based on the front-month contract settlement from last Friday, also logging its steepest weekly advance since late August.

“It looks like COVID is once again the culprit as the rapidly spreading omicron variant raises serious concerns over demand for crude oil as countries go back in partial or full lockdown,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a note. “Even milder restrictions such as working from home reduces oil demand as people no long commute to work.”

A lack of evidence that omicron is causing severe disease has blunted the impact on crude prices, Razaqzada said, and explains why oil prices bounced back strongly last week, though “the path of least resistance is likely to be to the downside for a while, even if we don’t see significant falls” in crude prices.

In addition to the impact of omicron, demand concerns are on the rise due to struggles of some emerging market economies and oil consumer nations, he said.

Oil is likely to also take cues from “this week’s parade of central bank meetings before settling down, as many traders leave their desks for the final two weeks of the year,” said Matt Weller, global head of research at FOREX.com and City Index, in a note.

The European Central Bank also meets later this week after the Fed.

Read: Highest U.S. inflation in nearly 40 years will force Federal Reserve’s hand

If the Fed gets too aggressive with interest rates, “it can slow the economy, but I think those fears are a bit overplayed,” The Price Futures Group’s Flynn told MarketWatch.

For now, it is likely more of a “worry trade” for oil because of weakness in the U.S. stock market, he said.

On Nymex Monday, prices for petroleum products also ended lower, with January gasoline
RBF22
down 1% at $2.117 a gallon and January heating oil
HOF22
lost 0.8% to $2.233 a gallon.

Natural gas for January delivery
NGF22
settled at $3.794 per million British thermal units, down 3.3%, after posting a loss of 5% for last week.

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