WTI slips to low-$78.00s amid subdued start to week as oil traders mull various macro, supply-side, pandemic themes

• WTI has started the week in subdued fashion, currently trading about 50 cents lower just under $78.50.
• Oil markets are weighing up themes this week including US inflation, supply disruptions and Omicron outbreaks in China.

Oil is in the red at the start of the week, with front-month WTI futures currently down about 50 cents on the session and probing the low-$78.00s, as the gradual pullback from last week’s highs above $80.00 continues. The price action thus far this Monday has been fairly uninspired, with WTI so far contained within a low-$78.00 to mid-$79.00 range. Newsflow has been fairly light, allowing market participants time to mull some of the ongoing macro themes.

On which note, macro focus will be on this week’s US Consumer Price Inflation data out on Wednesday which could impact market expectations as to whether the Fed is going to hike interest rates in March or not. The theme of Fed tightening has been the major talking point and driver of equity, bond and FX markets in recent days, but crude oil has also been focused on supply-side dynamics. Oil prices were supported last week by news of a significant near-term setback to production in Libya and as protests in Kazakhstan disrupted output there. While there is not yet any signs of production recovery in the former, the President of Kazakhstan said that the situation there is now back under control, easing fears that the country’s 1.6M barrels per day in output would face disruption.

Market commentators have also noted that China lockdowns are likely to be an important theme in crude oil markets looking ahead. Various Chinese cities are reporting instances of local transmission of the Omicron variant, the spread of which in China is seen as a key test of the country’s zero Covid-19 approach. After uncovering Omicron infections, the northern city of Tianjin has tightened exit controls, while the centrally located Henan province has also reported cases. Analysts at OCBC Bank said that authorities are likely to maintain their zero-Covid strategy ahead of the Beijing Winter Olympics this February and that the economy is likely to suffer “more short-term disruptions from more frequent lockdowns”.