MELBOURNE- Oil prices climbed on Tuesday, extending a rebound from last week’s plunge on growing expectations major producers would pause plans to add crude supply in January amid uncertainty over the severity of the Omicron coronavirus variant.
US West Texas Intermediate (WTI) crude futures jumped 99 cents, or 1.4 percent, to $70.94 a barrel, adding to a 2.6 percent rise on Monday.
Brent crude futures climbed 82 cents, or 1.1 percent, to $74.26 a barrel, after gaining 1 percent on Monday.
Oil plunged around 12 percent on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global growth.
The World Health Organization said on Monday Omicron posed a very high risk of infection surges, and several countries stepped up travel curbs. It is still unclear how severe the new variant is and whether it can resist existing vaccines.
With the demand outlook under a cloud, expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, due to meet on Dec. 2 will put on hold plans to add 400,000 barrels per day (bpd) of supply in January.
“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.
Pressure was already growing within OPEC+ to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.
“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighboring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production,” OANDA analyst Edward Moya said in a note.
Also weighing on the market is the prospect of a resumption of oil exports from Iran, following upbeat comments from diplomats as talks resumed on Monday between world powers and Iran on reviving a nuclear pact.
The Omicron coronavirus variant kicked oil prices lower late last week and has sapped refining margins, but with crude futures rallying on Monday, the impact could be limited.
Governments worldwide have imposed curbs on travellers to try limit the spread of Omicron, first detected in southern Africa, as scientists race to determine the level of risk.
Oil prices plunged more than 10 percent on Friday – their largest daily drop since April 2020 – but recovered some of those losses on Monday, standing up nearly 5 percent on the day. Analysts said the Friday sell-off had been excessive.
Refining margins fell further, increasing the impact of new coronavirus curbs that had already been rolled out in Europe.
On Friday, European diesel barge refining margins touched a three-month low of about $8 a barrel, although oil price volatility kept trading liquidity low.
Jet fuel cargo margins were assessed at about $7.7 a barrel, near a two-and-a-half month low.
“This broad-based correction reflected fears that the Omicron variant would turn into a major headwind to oil demand,” bank JP Morgan said, referring to Friday’s price move.
But it said it expected demand recovery from the pandemic to continue even though consumption forecasts had weakened before last week’s sell-off.
