Both major oil benchmarks consolidated last week’s mini-rally on Monday morning with rising inflationary pressure in the US and increasing market confidence that the Omicron variant’s impact on demand will be limited.
Brent Crude has stayed above $75 per barrel – at $75.77 – the first seven-day window of growth since October when prices hit a three-year high of $86.
The UK-based measurement gained 0.81 per cent by 0830GMT, while WTI Crude has risen nearly one per cent to $72.37 per barrel over the same time period.
Brent and WTI enjoyed eight per cent gains last week following seven successive weeks of losses.
The rising prices follow the US reporting price rises of 6.8 per cent in November, the highest inflation rates the country has faced in over 40 years.
It also reflects a bullish market attitude to the new variant, with the UK reporting that a booster jab can provide 75 per cent protection, while the latest findings from South Africa suggest there is no evidence it is more severe than previous variants.
Nathan Piper, head of oil and gas research at Investec told City A.M. the macro backdrop of inflation and associated positive interest rates would be an attractive climate for rising prices.
He said: “Short term, we expect the oil price to remain volatile as the impact of Omicron is assessed. However, in the absence of major lockdowns we believe prices should strengthen into 2022. This is underpinned by oil inventories already at 2015 levels, OPEC+ unwinding previous cuts and oil demand building beyond 2019 levels.”
Whether this sunny outlook remains intact with governments weighing up more restrictions over the winter remains to be seen – especially if air travel demand falters.
The UK has already entered ‘Plan B’ – with increased mask wearing and advice to work from home.
Other headwinds to consider include the upcoming OPEC+ meeting on January 4, with key exporters set to consider whether to maintain increased oil output next year at a rate of 400,000 barrels per day.
Meanwhile, the US Department of Energy is set to sell 18m barrels of crude oil from its strategic reserves later this week.