WTI crude oil drops over 3.0% as Omicron sours sentiment

• WTI takes offers to refresh two-week low, extends Friday’s losses.
• Covid woes renew fears of fresh travel restrictions ahead of holiday period.
• Iran conducts air defense practice, Baker Hughes highest rig count since April 2020.
• Indecision over US stimulus, Fed rate-hike fears adds to the bearish bias.

WTI crude oil bears attack $68.00, down 3.20% intraday during early Monday morning in Europe. In doing so, the black gold declines to the lowest level since December 06 as concerns over oil demand renew amid the virus-led risk-aversion.

Covid woes escalate in the West and challenge the holiday mood, as well as travel plans and hopes of energy demand linked to that. The reports a 52% jump in the weekly covid count and a virus-led death of a New Zealand resident who took Pfizer vaccine were the main catalysts favoring the virus-led risk-aversion. Additionally, New York Times said, “Dr. Anthony S. Fauci, the nation’s top infectious disease expert, warned on Sunday that the extraordinarily contagious Omicron variant of the coronavirus was raging worldwide and that it was likely to cause another major surge in the United States, especially among the unvaccinated.”

On a different page, the absence of the much-awaited US Build Back Better (BBB) stimulus, backed by US President Joe Biden, also weighs on the sentiment. US Senator Joe Manchin refused to vote in favor of the bill during the weekend, making it harder for the stimulus to progress in the remainder of 2021. However, US House Speaker Pelosi stays hopeful of reaching an agreement over BBB in 2022.

It should be observed that the hopes of a Fed’s rate-hike in early 2022 also weigh on the risk appetite and oil prices. The rate-hike chatters were latest fuelled by Fed Board of Governors member Christopher Waller who said, per Reuters, “The ‘whole point’ of the Fed's decision to accelerate the pace of its QE taper was to make the March Fed meeting ‘live’ for a first rate hike.”

Alternatively, a surprise rate cut from the People’s Bank of China (PBOC) and chatters over Kaisa, the troubled firm based in Beijing, join Iran’s aid defense activity to challenge the oil bears, but fail.

On Friday, US Baker Hughes weekly data suggested an increase of three rigs to 597 level, the highest mark last reported in April 2020, per Reuters. The news also said, “Lower exports are expected from Russia with exports and transit of oil from the country planned at 56.05 million tonnes in the first quarter of 2022 versus 58.3 million tonnes in the fourth quarter of 2021, a quarterly export schedule seen by Reuters showed on Friday.”

Given the absence of major data/events, crude oil traders will need to pay attention to the risk catalysts for fresh impulse.

Technical analysis

Failures to bounce off a weekly support line direct WTI crude oil prices towards monthly horizontal support near $65.50. However, oversold RSI conditions on the four-hour play challenge the bears. Even so, recovery moves remain elusive below the 50-DMA level of $71.15.