While gas soars, oil takes hit from Omicron

Natural gas prices have continued on a steep ascent in recent weeks, amid robust demand, supply constraints and low levels of storage. In stark contrast, oil prices have slumped as a result of renewed restrictions imposed to contain the spread of the Omicron coronavirus variant.

The February contract for West Texas Intermediate oil is currently trading at $69.6/barrel, after recovering 1.5% from a low on the previous day, while Brent is at $72.50/b, up 1.3%. 

"The potential expansion of the lockdowns may be reflected not only in the demand for oil reduction, but also in the oil and products cracks (which recovered to pre-COVID levels already) declining, affecting the profitability of oil producers and refiners," VTB Capital (VTBC) analyst Ekaterina Rodina commented in a research note.

Under their current policy, OPEC+ will restore 400,000 barrels/day of oil production each month until at least April 2022, although they could adjust their plans in light of Omicron's spread.

"Given the increase in the uncertainty on the demand for oil, due to the Omicron expansion, global oil producers are not in a rush to substantially intensify their investment programmes," Rodina said. "Otherwise , underinvestment in the industry in general might be able to provide support for the oil price in the mid-term."

How the oil market recovers from the pandemic will affect gas prices under oil-indexed contracts. These are currently much lower than spot gas prices at hubs, which have risen to record heights over the last few months.