OIL FUTURES: Crude rally falters amid omicron spread, weak US jobs report

Crude prices settled mixed Dec. 3, as a weaker-than-expected US jobs report and rapidly spreading coronavirus omicron variant added uncertainty to demand outlooks.

NYMEX January WTI settled 24 cents lower at $66.26/b while ICE February Brent finished 21 cents higher at $69.88/b.

Oil prices had been trading nearly $3 higher overnight, but the rally faltered midmorning, sending crude on a steady downtrend that left prices mixed at the settle.

US nonfarm payrolls added 210,000 jobs in November, Department of Labor data showed Dec. 3, well below market expectations of nearly 600,000 jobs. It was the smallest monthly jobs increase to date in 2021, but the report also showed that an increase in the labor force participation rate pushed the nationwide unemployment rate to 4.2%, a fresh pandemic low.

NYMEX January RBOB settled 1.48 cents lower at $1.9529/gal and January ULSD declined 50 points to $2.0984/gal.

Still, the soft jobs report added volatility to a market already on edge from surging coronavirus infections and a lack of clarity about the omicron variant, which has now been identified in at least five US states.

"The omicron variant continues to be the key to short-term crude demand outlook and the latest updates have been mixed," OANDA senior market analyst Ed Moya said in a note, adding: "The aftermath of the OPEC+ meeting on output has many traders believe that if omicron poses a bigger risk to the short-term crude demand, that would be met with a quick response of production cuts."

OPEC+ said Dec. 2 it would go ahead with its planned 400,000 b/d output increase for January, holding to its plan to steadily unwind production restraint for now. There had been widespread speculation that the group might pause supply increases amid concerns about the omicron variant's impact on demand and the additional supply being brought on to the market by releases of strategic petroleum reserves.

Commerzbank analyst Carsten Fritsch said he expected an oversupply in the market of around 3 million b/d at the start of 2022. The US reaffirmed its plan to go ahead with the release of 50 million barrels from its SPR.

The news came with the important caveat that OPEC+ could reconsider the production hike at short notice in the event of a change in market conditions, which should provide a floor to prices, according to ING analysts.

"There is still plenty of uncertainty in the near term with regards to price direction and, as a result, the market is likely to remain volatile. The short-term outlook will depend on how governments around the world react to the omicron variant in the coming weeks," ING analysts added.