U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are moving higher early Tuesday, building on yesterday’s almost 5% rally. Traders are saying the rally is being fueled by dampened concerns over the impact of the Omicron coronavirus variant on global demand and stalled Iran nuclear talks that will delay the return of Iranian crude oil to the open market.
At 08:52 GMT, January WTI crude oil is trading $71.06, up $1.57 or +2.26% and February Brent crude oil is at $74.53, up $1.45 or +1.98%. On Monday, the United States Oil Fund (USO) ETF settled at $50.49, up $2.49 or +5.19%.
This week’s rally represents a follow-through of the bottoming action that took place late last week after OPEC+ agreed to continue raising output by 400,000 barrels per day in January despite the release of U.S. strategic petroleum reserves.
OPEC and its allies also promised to make adjustments to production if the Omicron COVID-19 variant leads to demand destruction. That pledge gave traders the confidence they needed to reverse the selling pressure, igniting the start of the counter-trend rally.
Shorts Spooked, Specs Buying as Omicron Fears Ease
While Omicron has spread to about one-third of the U.S. states as of Sunday, Dr. Anthony Fauci, the top U.S. infectious disease official, told CNN that “thus far it does not look like there’s a great degree of severity to it.”
“The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note.
Prospect of Imminent Rise in Iranian Oil Exports Recedes
Indirect U.S.-Iranian talks on saving the 2015 Iran nuclear deal broke off until next week as European officials voiced dismay on Friday at sweeping demands by Iran’s new, hardline government.
Germany wants Iran to present realistic proposals in talks over its nuclear program, a Foreign Ministry spokeswoman said on Monday, adding that offers Tehran made last week almost all violate previously agreed compromises.
Its proposals are “not a basis for a successful end to talks,” she said. “We reviewed the proposals…carefully and thoroughly and concluded that Iran violated almost all compromises found previously in months of hard negotiations.”
January WTI traders could face a technical challenge on Tuesday at $70.83 – $72.81. The key area February Brent traders will be watching is $73.83 – $75.73. Trader reaction to these areas will determine the near-term direction of the markets.
The wildcard is the Omicron coronavirus variant. So far we know little about it, but what we know is not causing a bearish reaction in the market place.
Scientists continue to study the variant and could release a report by the end of the week. If they determine the vaccines are effective against the variant then prices could surge into mid-November levels. If the variant is resistant to vaccines then we could see a near-term retest of last week’s lows.
Later on Tuesday at 21:30 GMT, the American Petroleum Institute (API) will release its weekly inventories report. It is expected to show a drawdown for a second straight week.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire