Crude oil futures pare steep overnight losses on dip-buying

Crude oil futures edged higher in mid-morning trade in Asia Dec. 21 as investors went bargain hunting following steep losses of more than 3% overnight on mounting concerns over the omicron variant of the coronavirus.

At 10:37 am Singapore time (0237 GMT), the ICE February Brent futures contract was up 62 cents/b (0.87%) from the previous close at $72.14/b, while the NYMEX February light sweet crude contract rose 74 cents/b (1.08%) at $69.35/b.

A panic-driven sell-off had led to both benchmarks plunging by more than 5% at one point overnight, though the losses were eventually pared to settle 2.7%-3.7% lower on the day.

"Despite an overnight plunge from omicron concerns on demand outlook, oil prices attempted to pare back some losses, with the presence of a long tail on the candlestick," IG's market strategist Yeap Jun Rong said in a Dec. 21 note.

"A subsequent close above the hammer candlestick pattern over the coming days may validate the presence of dip buyers in attempting to reverse the near-term downward moves," Yeap added.

The omicron variant remained foremost on investors' minds as the virus continued to rage through much of Europe and the US. Analysts said prices will likely remain under pressure for the near-term until the worsening spread of the variant eases and oil prices are able to regain their bullish momentum.

"Despite all the talk about lack of reinvestment in new wells, oil prices have remained vulnerable on a deteriorating crude demand outlook thanks to the omicron variant," OANDA's senior market analyst Edward Moya said. "Oil market medium-term demand fundamentals still suggest that prices could once again regain bullishness, so traders may look for one last plunge before placing long-term bets for higher oil prices."

Some support was seen in North Africa, where an attack by militias knocked out more than 300,000 b/d of supply in Libya. The country's state-owned National Oil Corp. said Dec. 20 that the key southwestern oil fields of Sharara, El Feel, Wafa and Hamada, and the 300,000 b/d Zawiya oil terminal, have all been shut down after a blockade by a unit of the Petroleum Facilities Guards.

NOC said the blockade will result in a loss of more than 300,000 b/d, prompting it to declare force majeure on operations at these facilities.

Prompt spreads for ICE Brent and NYMEX light sweet crudes settled in a contango for the first time since March and April, respectively.

The M1-M2, or February-March, ICE Brent futures spread settled at minus 5 cents/b Dec. 20, down 5 cents/b on the day and a low not seen since March 23, 2021.

The M1-M2, or January-February NYMEX light sweet crude spread plunged 52 cents/b on the day to minus 38 cents/b, though this was partly due to low liquidity on the January contract's last trading day.