WTI nudges higher towards $70.00 amid decent dip demand, though Omicron remains a risk

• Crude oil prices have chopped between the $68.50 and $70.00 levels on Tuesday.
• Prices are substantially higher versus Monday’s lows amid dip-buying, though Omicron remains a risk.

Front-month WTI crude oil future prices have been choppy on Tuesday, swinging between the $68.50 and $70.00 level and, in doing so, swinging between gains and losses. At present, oil is trading in the mid-$69.00s, in the top half of today’s trading range and with very modest gains of about 25 cents on the session. Again on Monday, it seems that oil prices over-reacted to the latest Omicron news, providing a dip-buying opportunity for the longer-term bulls. At current levels, WTI is up more than 5.0% or close to $3.50 per barrel versus its Monday lows just above $66.00.

In terms of the latest on Omicron, sequencing data released on Tuesday out of the US showed that Omicron now made up 73% of total Covid-19 infections in the country. Most expect that the US will soon follow the path of the UK and see the daily infection rate spike to record highs. This is likely to cause alarm, which is a risk that crude oil traders should watch out for over the coming sessions/weeks into early 2022. But the key factor in the US is whether it follows in the footsteps of Europe by states moving to lockdown and whether hospitalisations surge.

Given the above, just as sharp downturns might be seen as a market overreaction, any sustained crude oil rally in the coming days is vulnerable to be seen as a selling opportunity. Aside from tracking pandemic news/trends,US crude oil inventory data will also be worth watching. Private weekly API inventory figures will be released on Tuesday at 2130GMT ahead of official weekly US inventories on Wednesday. Expectations are currently for Wednesday’s official data to show a sizeable 2.6M barrel draw in stocks.