What the oil market signals about omicron

Oil has advanced 56% this year to $76 per barrel

Sometimes the oil market can be a predictor of future events. Could the rebound in oil signal the beginning of the end of the COVID plague?

Right after Thanksgiving, oil prices crashed on reports of omicron, a new variant of the COVID-19 virus. Crude oil prices went down on anticipation and fear that we could see the global economy shut down in an attempt to stop the spread of this new fast-spreading variant. Energy prices plunged into bear market territory. 

OIL'S BEAR MARKET MAY BE A SHORT ONE

Ticker Security Last Change Change %
USO UNITED STATES OIL FUND L.P. 61.05 +0.08 +0.13%
BNO UNITED STS BRENT OIL FD LP UNIT 23.59 +0.02 +0.08%

Yet now oil prices are surging back as it is clear that omicron will not shut down the global economy nor will it shut the U.S. economy, where we are still the world's biggest consumer of oil. 

President Biden acknowledged as much, lowering fears of a COVID-19 shutdown, and said Monday, "There is no federal solution. This gets solved at the state level."  

In other words, a lockdown is off the table. Yet what may turn oil around are reports that people who catch the omicron variant might strengthen immunity against the earlier delta strain of the virus.

COVID TEST MAKER RAMPS UP PRODUCTION

This could be big news for oil demand. Historians and scientists say that viruses that cause pandemics often mutate to become less life-threatening. The devastating 1918 Spanish flu pandemic reportedly ended as more people became exposed to the virus and the strains became less life-threatening. 

Bloomberg News reported. "While omicron has been shown to be highly transmissible and can evade some antibodies, after two weeks of getting symptoms immunity to subsequent infections from the strain rose 14-fold, according to the authors led by Alex Sigal and Khadija Khan of the Durban, South Africa-based Africa Health Research Institute. A smaller improvement was found against delta," it continued. 

Ticker Security Last Change Change %
XOM EXXON MOBIL CORP. 73.11 +0.03 +0.04%
CVX CHEVRON CORP. 128.91 -0.47 -0.36%
COP CONOCOPHILLIPS 87.28 -0.23 -0.26%

And while it is too early to say that this is the end of the pandemic, it does suggest that the odds of an extended open global lockdown of economies is unlikely. 

What it also means for oil traders is that the selloff we saw in oil was way overdone based upon the reality of what has happened. Because oil producers may have cut back a bit due to lower prices and buyers of oil slowed their purchases on fears of demand destruction, it could leave us caught short so the ensuing rally in oil could send prices higher than would have been if there had been no omicron scare at all.

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Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com.