Crude oil futures extend gains as risk-on sentiment remains intact

Crude oil futures moved higher in mid-morning trade in Asia Dec. 22, extending sharp overnight gains, as risk-on sentiment grew amid signs that the US and UK were not headed for widespread lockdowns as previously feared.

At 9:57 am Singapore time (0157 GMT), the ICE February Brent futures contract was up 43 cents/b (0.58%) from the previous close at $74.41/b, while the NYMEX February light sweet crude contract was 55 cents/b (0.77%) higher at $71.67/b.

Analysts said Asian markets were being lifted by the strong performance in the US trading session overnight, as initial fears over the growing spread of the omicron variant of the coronavirus sent oil prices crashing by close to 5% on Dec. 20 eased.

The growing optimism saw both benchmarks settling higher by 3.4%-3.7% overnight.

"While the bullish momentum from the US trading session may help lift sentiments into Asia's session today, the relatively quiet economic calendar may also put focus on developments in China's property sector and ongoing virus risks to reopening plans," said IG market strategist Yeap Jun Rong.

US President Joe Biden said Dec. 21 the government will provide half a billion test kits to American households, ramp up hospital support and create more pop-up vaccination sites, while ruling out lockdowns in the leadup to Christmas.

UK Prime Minister Boris Johnson similarly said Dec. 21 that the country will not see additional lockdown measures, at least before Christmas.

"On the virus front, President Biden has provided some much-needed reassurances for markets that vaccinations and testing are still his preferred way to curb spreads, rather than economic restrictions," Yeap said.

OANDA senior market analyst Edward Moya said in a Dec. 22 note: "Both the US and UK are not headed to lockdowns and that suggests the short-term outlook might not get completely derailed by the omicron variant."

In the near term, investors will be looking to inventory data due for release by the US Energy Information Administration later Dec. 22 for the next direction in oil prices.

Analysts surveyed by S&P Global Platts Dec. 21 expected US commercial crude stocks to have fallen 3.9 million barrels to around 424.4 million barrels in the week ended Dec. 17.

US gasoline inventories were expected to have climbed around 600,000 barrels to 219.2 million barrels over the same period, while total distillate stocks were expected to have declined 1.6 million barrels to 122.2 million barrels.

Data from the American Petroleum Institute released Dec. 21 showed US crude oil stocks falling by 3.7 million barrels last week, media reports indicated.