Oil prices sink on Omicron demand fears

LONDON: Oil prices slumped by about $3 on Monday as surging cases of the Omicron coronavirus variant in Europe and the United States stoked investor worries that new mobility restrictions to combat its spread could hit fuel demand.

Brent crude futures fell by $3.16, or 4.3 percent, to $70.36 a barrel by 1506 GMT, while US West Texas Intermediate (WTI) crude futures were down $3.47, or 4.9 percent, at $67.39.

"Oil prices are getting pummelled again as sentiment turns south and countries ponder deepening restrictions and lockdowns," said Craig Erlam, senior market analyst at OANDA.

"None of this bodes well for crude demand in the first quarter of the year." Analysts said traders fretted over the fallout for the world´s appetite for energy, which has already taken a heavy blow since the pandemic erupted early last year.

"For crude oil, it is all about demand concerns right now," ThinkMarkets analyst Fawad Razaqzada told AFP. "Travel restrictions have been tightened across most of Europe and there is the potential for more measures to be announced in the coming days.

"Traders are thus left with little choice but to sell oil, as well as energy and travel stocks, with very little appetite for risk-taking."

AJ Bell investment director Russ Mould after battling endless headwinds in recent weeks, markets have finally been knocked over as the rapid spread of Omicron finally reaches panic mode.

"Tighter restrictions across parts of Europe and fears that we could see a circuit breaker in the UK have put a chill in the air for investors." Since it was first reported in South Africa in November, Omicron has been identified in dozens of countries, prompting many to reimpose travel restrictions and other measures.

The Netherlands imposed a Christmas lockdown and Germany tightened restrictions notably affecting the unvaccinated, while media speculation swirls over the re-imposition of tougher UK curbs.

"There is some de-risking in the face of headline news that has market participants thinking the Omicron Grinch might steal Christmas after all," said analyst Patrick J. O´Hare at Briefing.com.

The oil and gas rig count, an early indicator of future output, rose by three to 579 in the week to Dec. 17, representing its highest since April 2020, energy services business Baker Hughes Co said in its closely followed report.

Lower exports are expected from Russia, however, with exports and transit of oil from the country planned at 56.05 million tonnes in the first quarter of 2022 versus 58.3 million tonnes in the fourth quarter of 2021. Meanwhile, OPEC+ compliance with oil production cuts stood at 117% in November, up 1% from the previous month, two sources from the group told Reuters, as output continues to lag agreed targets.