Oil declined for a third day as further restrictions were imposed to counter the spread of the omicron Covid-19 variant while the outlook for demand in China dimmed as Beijing cracks down on the virus, pollution and rule-breakers.
Futures in New York tumbled to below $70 a barrel, extending this week’s decline to more than 2 per cent. China, the world’s biggest importer of crude, is set to start 2022 with a subdued appetite that will partially offset the traditional increase in demand from refineries to replenish inventories during the winter months.
That comes as the Paris-based International Energy Agency said that the global market had already returned to surplus and that jet fuel demand is faltering due to omicron. On Tuesday, Brent’s prompt timespread briefly flipped into contango, a bearish signal suggesting supplies are plentiful.
Oil’s drop this week has eaten into a partial recovery from a bear market at the end of November. The fast increase in omicron cases, which have surged to 3 per cent of all those sequenced in the US just this month, and another report showing inflation running hot are likely to damp risk appetite, which is being reflected in thinning trading volumes ahead of the year-end holiday season. Aggregated trading volumes for the US benchmark on Tuesday shrank to the lowest since November 24.
“Investors are currently assessing the rapid spread of the omicron variant as we enter the year-end and the uncertainty surrounding the severity of the virus will only add more volatility,” said Will Sungchil Yun, a senior commodities analyst at VI Investment in Seoul. “The new variant is likely to force China to further tighten its controls ahead of the winter Olympics that will weigh on overall oil consumption.”
The industry-funded American Petroleum Institute reported on Tuesday that US crude stockpiles fell 815,000 barrels last week, according to people familiar with the data, while inventories at the storage hub of Cushing rose.
The World Health Organization cautioned against dismissing omicron — which has been reported in 77 nations — as mild considering how quickly it’s spreading. Jurisdictions from New York to South Korea have announced stricter measures in the wake of resurgences in cases.