Oil rebounds to make up for losses after worst day of the year

Oil rig pumps operate at the Inglewood oil field in Culver City, California, Sunday, July 11, 2021.

Kyle Grillo | Bloomberg | Getty Images

Oil prices jumped on Monday as traders gambled that Friday’s sharp sell-off, fueled by fears that a new omicron Covid variant would curb demand for petroleum products, had been exaggerated.

West Texas Intermediate crude oil futures, the benchmark US oil, rose $ 1.80, or 2.6%, to $ 69.95 a barrel. Earlier in the session, it traded at $ 72.93, although the contract was declining throughout the session and could not hold the key level of $ 70.

WTI fell 13% on Friday, its worst day since April 2020. It also closed below its 200-day moving average – a closely watched technical indicator – for the first time since November 2020.

Brent crude, the international oil benchmark, climbed 0.99% to $ 73.44 a barrel. The contract fell 11.55% on Friday and, together with WTI crude, lost for the fifth week in a row.

“The fall in prices on Friday was excessive,” analysts at Commerzbank say. “Admittedly, the omicron option raises concerns about demand, but it is not yet possible to say with any seriousness about what impact this will actually have on demand.”

Even before Friday’s sharp drop, oil was on a downward trend after WTI hit a seven-year high above $ 85 in October. Brent crude hit a three-year high last month.

Given the strong rebound in oil in 2021, RBC analysts added that some Friday sale may be related to profit taking by traders.

“At least part of Friday’s air pocket decline was driven by a reduction in risk, potentially within a year,” the company said Sunday in a note to customers. “After 11 months of stable pricing, oil traders would rather reduce risks and protect their nest than grapple with a wave of market events like COVID for another month before the end of the year.”

The oil swing comes ahead of a key meeting between OPEC and its oil-producing allies, at which the group will decide on production policies for January. The alliance, known as OPEC +, is bringing 400,000 barrels a day back to the market every month, canceling historic production cuts made in April 2020 as the pandemic reduced demand for petroleum products.

In addition to the latest price changes, the group will be assessing the trajectory of supply and demand after the US and other countries announced plans last week to use the strategic oil reserve to curb skyrocketing fuel prices. The Biden administration has said the US will release 50 million barrels from the SPR.

Wall Street is divided over what OPEC + may announce at Thursday’s meeting. “Given the uncertainty over the omicron, we expect OPEC to postpone its January production increase target and maintain its quota unchanged,” Morgan Stanley wrote in a note to clients.

Citi, on the other hand, predicts that OPEC + “will stick to the line and adhere to the planned 400 kb / d increase in quota.”

– Michael Bloom of CNBC contributed to this report.

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