Why oil has suddenly dipped back down below $100

Less active market

West Texas Intermediate oil futures dropped below $100 a barrel on Tuesday, having shed more than 20% in a tumultuous week of trading that’s seen wild price fluctuations.

The latest developments to rattle the market are a resurgence of Covid-19 cases in China, the world’s biggest crude importer, and what appears to be progress in cease-fire talks between Ukraine and Russia. While there are still concerns that the disruption to Russian oil flows is squeezing an already tight market, OPEC and others have been quick to point out there is no shortage.

The market is also in the midst of a liquidity crunch, leaving prices vulnerable to big swings. Clearing houses have been increasing margins — effectively making it more expensive to trade the same amount of oil — and open interest has collapsed to the lowest since 2015. The gap between bids and offers for WTI was six cents at times on Tuesday — it would usually only be about half that amount — another sign of a less active market.

China’s latest virus outbreak, with growing clusters spawned by the highly infectious omicron variant in some of its most-developed cities and economic zones, is an unprecedented challenge for the country’s Covid Zero strategy. The nation injected more funds into the financial system and set a weaker-than-expected reference rate for the yuan, seeking to support the economy.


U.S. economy slows sharply during omicron wave

Record spread of new coronavirus strain exacerbates labor and supply shortages

The U.S. economy dropped down to a slower gear in January amid a record outbreak of coronavirus cases that intensified labor and supply shortages, according to pair of IHS Markit surveys of senior business executives. A “flash” index of service-oriented companies tumbled to an 18-month low of 50.9 from 57.6 in the final month of 2021, IHS Markit said. A similar gauge of manufacturers dropped to 55 from 57.7 in December — a 15-month low. The flash IHS surveys give the first clear indication of the damage done to the U.S. economy in the first month of the new year.

Any reading above 50 means businesses are growing and numbers above 55% are quite healthy. Yet conditions aren’t as good as they were last fall, no thanks to the latest strain of the coronavirus. “Labor shortages, employee absences and the omicron wave reportedly weighed on growth,” IHS Markit said.


S&P 500 hits record close as Omicron fears ebb

Major indexes climb for 3rd straight session

Wall Street’s main indexes posted solid gains for a third straight session on Thursday, with the S&P 500 marking a record-high close, as encouraging developments gave investors more ease about the economic impact of the Omicron coronavirus variant.

Stocks ended the holiday-shortened week on a positive note, lifting sentiment heading into Christmas. Gains were broad among S&P 500 sectors, led by consumer discretionary (.SPLRCD) and industrials (.SPLRCI), which both rose about 1.2%.

Vaccine makers AstraZeneca Plc (AZN.L) and Novavax Inc (NVAX.O) said their shots protected against Omicron as UK data suggested it may cause proportionally fewer hospital cases than the Delta variant, though public health experts warned the battle against COVID-19 was far from over.

The arrival of Omicron has helped ratchet up market volatility for much of the last month of 2021, which has been a strong year for equities.


Davos meeting postponed again as Omicron variant surges

Virtual event with global leaders to take place instead

The World Economic Forum (WEF) on Monday postponed its annual meeting in Davos due to the spread of the Omicron coronavirus variant, putting off the event scheduled for January until mid-2022.

A month before world business and political leader were due to gather in the Swiss ski resort, its organisers said they had decided to postpone in light of continued uncertainty over Omicron, adding the event was now planned for “early summer”. Davos, which in the past has attracted around 3,000 business chiefs, political thinkers and state leaders, was deserted last year after the event was cancelled due to COVID-19.