Oil extended gains on optimism that the omicron virus variant may not be as severe as feared, easing concern over the demand outlook.
West Texas Intermediate traded near $72 a barrel, while the global benchmark Brent hovered around $75, as equity markets rallied. Initial data indicates that the surge in omicron cases hasn’t overwhelmed hospital so far, and mobility statistics show little evidence of a significant hit to global oil consumption so far.
“While there is probably going to be some demand destruction because of omicron, the market priced in a lot worse than what it’s going to be,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “We are getting back to more real fundamentals versus the fear fundamentals we were trading on last week.”
Some oil analysts saw oil’s plunge in recent weeks as driven by low liquidity and so-called negative gamma effects, where options traders are forced to sell futures contracts to hedge their risk. When prices rise, like they have in recent days, those traders often buy back the futures they sold, further fueling the rebound.
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