WTI crude oil futures rose to $73 per barrel today, making up for most of the recent decline associated with the omicron virus.
Concerns that a new strain of the coronavirus could harm global economic growth and fuel demand seem to be lowered by, among others, following announcements from vaccine companies.
Third dose vs. omicron
Omicron may be milder than initially thought, with medical companies Pfizer and BioNTech reporting Wednesday that the third dose of their vaccine provides a high level of protection against this mutation of the coronavirus.
Rising crude prices may also be served by the fact that an agreement on the 2015 Iran nuclear pact still appears distant and tensions between the West and Russia over Ukraine remain high. Indeed, geopolitical risks appear to be further keeping oil prices higher.
EIA data showed that U.S. crude inventories fell by a modest 0.24 million barrels in the previous week, while Cushing crude inventories rose by 2.37 million barrels, the largest increase since the week ended February 19.
Cheaper oil means lower inflation and less pressure to raise interest rates
However, a long-term rise in oil prices seems unlikely. Major oil consumers could release their strategic reserves if the price of a barrel would rise above $80 a barrel Hence, it is more likely that oil prices may enter a consolidation between $62 and $76 per barrel.
If the oil price rally were to be resolved in the long run, inflation and thus also the pressure for interest rate hikes, which is currently weighing on the shoulders of central banks around the world, may decrease.
According to a Reuters poll, the next interest rate hike by the Federal Reserve would not come until Q3 2022, which is much later than the market is expecting, pricing in a Q2 2022 deadline.
We may get more information on this next week, when the Fed's decision will be followed by macroeconomic projections of FOMC committee members.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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