WTI pulls back from weekly highs above $73.00, now under $72.00 as pandemic updates awaited

• WTI has dipped back under $72.00 after printing weekly highs above $73.00 earlier in the session on Thursday.
• Whilst a little lower on the day, oil prices remain largely rangebound as it awaits further Omicron/lockdown/pandemic headlines.

Oil prices have pulled back a little after printing fresh weekly highs this Thursday, though remain comfortably within recent intra-day ranges and holding on to impressive weekly gains. Front-month WTI futures managed to pip the $73.00 level during Asia Pacific hours and have since pulled back under $72.00, where they trade with losses on the day of close to $1.0. But that leaves them comfortably above Wednesday’s sub-$71.00 lows, and still over $5.0 (roughly 8.0%) up on the week.

Oil prices have eroded about 60% of their decline in wake of the emergence of the Omicron variant that saw prices tumble from around $78.00 on November 25 to the $62.00s on December 2. Price action over the past two days, which has seen broadly seen oil prices stabilise in the $71.00-$73.00 region, suggests that oil market participants deemed the initial sell-off as overdone, especially in light of evidence showing that Omicron is milder than previous variants. But recent price action suggests that (unlike in equity markets), there isnt yet the confidence to drive oil prices back to pre-Omicron levels. Countries around the world continue to tighten restrictions aimed at slowing the spread of the virus – UK PM Boris Johnson announced Covid-19 “Plan B” for England on Wednesdays and there are fears that parts of the US may follow suit.

Global infection rates, still mainly driven by delta (though likely to be rapidly accelerated by Omicron), are rising and it would be wise to expect more light lockdown measures. According to analysts at ING, “the UK has moved back to work from home as the norm... Other countries will doubtless follow”. “At the very least,” the bank continues, “the F&B industry and leisure will suffer from this at the most critical time of the year for them... So I'd be hesitant before piling back into risk assets at this time of the business year”.

In other oil-related news on Thursday, talks between the Iranians and Western powers over a return to the 2015 nuclear deal are scheduled to resume, though expectations remain low amid maximalist Iranian demands. Whilst Iran nuclear talks will be worth following (any signs of substantive progress would be bearish for oil), the main driver will remain headlines about Omicron, lockdowns and, more broadly, the state of the global pandemic.