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Oil up 4% as Omicron Scare Abates; Chance Remains for Swings -Breaking

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© Reuters.

By Barani Krishnan

Investing.com: Oil prices rose by 4% on Monday, their strongest recovery since the Omicron scare. Longs returned to oil after seeing less negative news about it on Monday.

Also bolstering sentiment was Saudi Arabia’s move to raise the OSP, or Official Selling Price, of its U.S.- and Asia-bound crude from January and renewed hints from producer group OPEC and its allies that they may go back to cutting output.

WTI or U.S. Crude Oil Index, which was $2.68 higher or 4% at $68.94 per barrel, was reported to be up by 1:30 ET (18.30 GMT). WTI fell to $62.48 for the fourth month, following a high of $85.41 mid-October that was seven years ago.

The global standard for oil was London-traded crude. It rose 3.8% to $72.52. Brent dropped to $65.80 from an $86.70 high in October 2014, when it was at $65.80.

While there was heavy buying among traders sensing a bargain to last week’s lows, some analysts cautioned that the upward momentum could reverse at any time once new Omicron warnings creep back into the market.

“Ultimately, the most bullish thing for prices is that Omicron is reportedly less severe and if more good news follows, we can all relax a little and the downside risks to the economy will abate,” said Craig Erlam, analyst at online trading platform OANDA.

But he also said, it was “too soon to get carried away” with the reprieve of the virus.

“We’ve seen this repeatedly since the initial news broke a little over a week ago. Markets have been very headline-driven and this is just the latest rally on the back of some positive reports.”

“If the good news doesn’t follow, OPEC+ will pare back output and support prices that way. It is unclear how severe the lows, if any, will be in the interim. Producers’ resolve has been tested before on many occasions.”

Mohammad Barkindo, Secretary General of OPEC, said Saturday that producers may revert to slashing their production if it is not possible for crude oil prices to stop falling over the last six weeks.

Barkindo stated that he will do all he can to maintain stability on the oil market. This was in response to an industry gathering on Saturday.

This meant that OPEC’s additional 400,000 barrels per day that it and its allies have committed to pumping since July was likely to be scrapped if the global demand and price of crude oil remain low. 

OPEC and its OPEC+ allies still keep a total of 5.0 million barrels daily from the market in part of their production cuts that were made at the time of the Covid-19 price collapse. They have repeatedly stated that they are open to increasing those production cuts.

Saudi Arabia, head of OPEC+, has used two proven strategies to increase crude prices: output reductions and OSP rises. 

The Saudi “Arab light grade” crude for Asian customers will cost $3.30 a barrel above a benchmark from January, 60 cents more than in December, the kingdom’s state-owned oil firm Saudi Aramco (SE:) Monday. Aramco increased by 80cs its January-bound crude oil to Asia and America. 

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