- Oil prices are lower on Monday, with WTI down $ 2.50, as traders raise concerns about Ómicron and the locks / restrictions associated with the variant.
- The next notable area of support is the early December lows at $ 62.50.
Oil prices are substantially lower on the first day of the week, and first month WTI futures are currently trading lower, shedding close to $ 2.50 as traders mention concerns about the Omicron spread and associated closures / restraints. During the Asian session the WTI fell below $ 70.00 and a key support area from last week at $ 69.50. Since then, selling pressure has continued to ease with WTI recently falling below $ 67.00, although the US benchmark for light sweet crude has since stabilized modestly below $ 68.00.
The Netherlands announced a return to the lockdown on Sunday, pressuring their European peers to follow suit. Local newspapers in Italy reported that new restrictions are possible there too and that there are many conversations in the UK about the possibility of further restrictions as government officials refuse to rule out anything. Meanwhile, in the US, health officials are urging Americans to get booster shots, wear masks and reconsider travel plans for the holidays. The fear is that greater restrictions on the movement of people, whether imposed by governments or imposed by individuals as a precaution, will restrict demand for crude oil in the short term.
The crude oil-specific news stream has also been supportive, as the Baker Hughes U.S. weekly rig count number (released Friday) hit its highest level since April 2020, a leading indicator of increased US production in the coming months. This appears to be contributing to concerns that oil markets will quickly return to a supply surplus versus the supply deficit that has sustained prices so much over the past year.
From a technical point of view, things are not very reassuring. The next notable area of support is at the early December lows of $ 62.50, a drop of $ 5.0 or roughly 7.5% below current levels. There are some lows in the $ 64.00-$ 66.00 area that could offer some support. But if the bears really want it, there’s not much to prevent a retest of the monthly lows. Much will depend on Omicron developments / locks and shutdowns over the next several weeks. Politically, countries in Europe, North America, and other parts of the culturally Christian developed world may find it difficult to close before Christmas on Saturday. But after Christmas Day has passed and is gone, a broad international tightening of closures may soon follow. Monday’s price action appears to reflect this elevated risk.
Technical levels
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