Oil prices dipped on Friday, putting the market on track for a weekly loss, as surging cases of the Omicron coronavirus variant raised fears new curbs may hit fuel demand, while a weaker dollar supported commodity markets broadly.
U.S. West Texas Intermediate (WTI) crude futures dropped 95 cents, or 1.32%, to $71.01 a barrel.
Brent is headed for a 1.2% loss this week, while WTI is poised to finish the week down 0.1%.
“Look at what’s happening with Omicron – that’s a negative which people are trying to digest. Are we going to be in line for some new restrictions? That’s what the market’s trying digest,” said Commonwealth Bank commodities analyst Vivek Dhar.
In Denmark, South Africa and the United Kingdom, the number of new Omicron cases has been doubling every two days. Denmark’s Prime Minister Mette Frederiksen on Thursday warned the government may impose further curbs to limit the spread of Omicron.
In the United States, the rapid spread of the Omicron variant has led some companies to pause plans to get workers back into offices.
“Crude continues to face significant headwinds from the Omicron variant, with the demand outlook for early next year taking a hit, but OPEC+ stands ready to act should the situation necessitate which will continue to backstop prices for now,” OANDA analyst Craig Erlam said in a note.
The Organization of the Petroleum Exporting Countries, Russia and allies, together known as OPEC+, have said they could meet ahead of their scheduled Jan. 4 meeting if changes in the demand outlook warrant a review of their plan to add 400,000 barrels per day of supply in January.
Despite the Omicron threats to demand, Goldman Sachs said on Friday the new variant has had a limited impact on mobility or oil demand, adding it expects oil consumption to hit record highs in 2022 and 2023.
Oil prices have also retreated from multi-year highs earlier in the fourth quarter on improved supplies.
“Supply tightness is easing with a monthly addition of 400,000 barrels per day (bpd) from OPEC+ and U.S. oil output of 11.7 million bpd,” ANZ Bank said in a note on Friday.
Benchmark Brent and WTI both gained around 2% on Thursday, buoyed by record U.S. implied demand and a weaker U.S. dollar as the Bank of England surprised markets with a rate hike, taking a more hawkish stance than the Federal Reserve.