Oil prices fell early on Friday and were on track for a weekly loss as the fast-spreading Omicron COVID variant increased concerns about a potential hit to oil demand, while the hawkish Fed stance of tightening monetary policy next year started to lead to anxiety about economic growth.
As of 10:00 a.m. EDT on Friday, WTI Crude was down 1.87% at $71.10 and Brent Crude prices had fallen by 1.75% to $73.71.
Oil prices were up on Wednesday and Thursday, following a bullish inventory report from the Energy Information Administration (EIA) showing falling U.S. crude and oil product inventories and a record petroleum demand in America for the week to December 10.
However, the fast-spreading Omicron variant and the possibility that tighter monetary policy could harm economic growth next year weighed on the oil market early on Friday.
"Crude futures were under slight pressure early Friday in Asia as Omicron worries returned centre-stage after the market had priced in the relief and optimism triggered by the US Federal Reserve and a bullish set of weekly US stocks and demand data on Wednesday," Vanda Insights said in a note.
"As the week comes to an end, markets are focussing on the high rates of transmissibility being reported for the Omicron variant but struggling to assess its full implications and impact," Vanda Insights added.
The UK reported a record number of daily new COVID cases for a second day in a row on Thursday, Germany warned of a "massive fifth wave" with Omicron infections, while cases are rising in the U.S. too, with Omicron spreading fast.
"Omicron developments continue to impact the short-term demand outlook," Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Friday.
"A weaker dollar has been offset by tighter monetary policies potentially softening the 2022 growth outlook further. While Europe is dealing with a worsening energy crisis, milder than normal weather in Asia has led to a less demand for fuel products used in power generation and heating," Hansen added.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More