Oil keeps positive momentum on Omicron relief and API crude draw projection
Most of the oil price losses that Omicron’s initial panic brought last week are now reversed and prices are stabilizing, more importantly maintaining a positive momentum.
Although the picture is not yet complete, Omicron worries have for now been put on ice, as the new variant’s symptoms have so far been branded as mild, a relief for traders who initially feared the worst.
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The oil optimism of recent days has stretched into today, supported by the API forecast of a healthy draw of crude inventories in the US, which provides some upward momentum for prices. If the EIA data is aligned with the API projection, oil bulls can sit more comfortably.
However, the price growth could be capped by more bearish builds at the Cushing hub or in the products spread, potentially a result of weaker net exports versus growing shale production or as domestic gasoline and diesel demand experiences a post-Thanksgiving slump.
The nationwide crude stocks draw could also be an anomaly, as the draws could be concentrated in the West due to the 3-week weather-related outage at the Trans Mountain pipeline, which only just resumed activities on Sunday.
Overall the oil products demand sentiment in the US is positive as vaccinations allow the economy to remain open and transport is returning closer to pre-pandemic norms, which has helped refineries increase runs and utilization.
However, with a seasonal drop in travel and maintenance at US refineries ahead in the coming quarter, there has been a “call” for crude inventories to build.
On top of this, there has been a post-Thanksgiving travel slump, which we estimate already triggered a drop in road fuels demand of nearly 300,000 bpd compared to the previous week.
Oil prices are still waiting for a clearer signal on how strict lockdowns will need to be to control the spread of the new Omicron variant.
The bulls logged a victory yesterday when US health chief Fauci downplayed Omicron’s severity despite its higher transmissibility rate.
But with so many Omicron facts still unconfirmed, the reactions of governments are erring towards strict and cautious, putting downwards pressure on oil demand for the month of December at the very least.
While many governments have so far reacted to the new Omicron virus with stricter travel measures, so far these tighter rules have not yet led to a global decrease in jet fuel demand, which our real-time data suggests actually marginally increased week on week.
However, there was a noticeable downward trend in Africa aviation activity, which fell 8% w/w with the introduction of stricter travel rules enacted in late November 2021.
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