Crude Oil Prices and Stocks Fall as Omicron, Central Banks Spook Markets. Will WTI Make a New Low?

[MongiIG]

CRUDE OIL, US DOLLAR, OMICRON, FAUCI, OPEC+, PBOC, JPY, AUD - TALKING POINTS

• Crude oil prices tumbled today as the Omicron variant cut growth, demand expectations
• APAC equities moved lower, joined by most commodities and associated currencies
• China eased credit conditions, but risk assets leaked anyway. Will oil tank further?

Crude oil prices went lower in the Asian session as risk assets came under pressure across the board. Markets were already worried about the impact of the spread of the Omicron variant before comments from Anthony Fauci, director of the US' National Institute of Allergy and Infectious Diseases (NIAID).

Mr Fauci said that the US will likely see record numbers of COVID-19 cases, hospitalizations, and deaths in the weeks ahead due to the Omicron variant.

OPEC+ said at their last meeting that they would react promptly if they felt it necessary, but markets are not anticipating any announcement soon.

Other energy commodities were also lower today, while a rally in US Treasuries saw yields go to their lowest levels for 2 weeks.

A soft US equity market on Friday led APAC stocks lower before the negative news had hit the wires. All Asian bourses are in the red with Japanese stocks hardest hit.

However, the Japanese Yen was the strongest today, followed by the Euro and then US Dollar. The growth linked commodity currencies of AUD, CAD, NOK and NOK, were the weakest on the day.

Futures prices are indicating a negative start for Wall Street of around -1% at the time of going to print.

Assorted headwinds include worries about accelerated monetary tightening following last week’s FOMC meeting even as fiscal expansion runs into roadblocks. Senator Joe Manchin, a Democrat from West Virginia, said he will not support the Biden administration’s USD 2tn spending plan. That may see it struggle for passage in the narrowly-split upper chamber.

In other news, the Peoples Bank of China (PBOC) cut the 1-year loan prime by 5 basis points to 3.8%, the first move since April 2020.

While the size of the change does not seem significant, the market is looking for further stimulus measure from the Chinese authorities into 2022.

Today’s rate move comes after a cut in the reserve ratio requirement (RRR) last week. The RRR is the amount of cash at hand that banks in China need to keep in reserve. The market is anticipating further cuts in the RRR.

This helped iron prices surge toward USD 116 a tonne on the Singapore Exchange (SGX) after hitting a low of USD 88.45 a tonne in November.

Looking ahead, the US will see the release of the Conference Board’s leading index, but markets will be alert for further updates on Omicron impacts.

 

CRUDE OIL TECHNICAL ANALYSIS

Crude oil broke below a pivot point of 69.49 today and that level may offer resistance. Further up, resistance might be found at the pivot points and recent high of 72.93, 73.34 and 74.76.

The 100 and 200-day simple moving averages (SMA) are potential resistance levels as well.

As it moved lower, it also went below the 200-day SMA which could mean that bearish momentum is evolving, as all other short and medium term SMAs are above the price.

Support might be at the recent low of 62.43 or the August low of 61.74.

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com