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Oil snaps three-day rally before Christmas

Canada oil

Oil prices snapped a three-day rally this Friday after Christmas, even though, oil prices ended up the week higher, as the market is easing concerns over Omicron. The main focus is now on the next OPEC+ move.

Firstly, Brent settled 71 cents lower this Friday at $76.14 a barrel, rising about 3% on the week. After closing the trading sessions this Friday, the markets will remain close for the Christmas holiday.

Moreover, oil prices have recovered this week as fears over the impact of the highly infectious Omicron variant on the global economy receded, with early data suggesting it causes a milder level of illness.

OANDA analyst Jeffrey Halley said about the matter. “The omicron-is-mild rally could well continue into January now, but reality will bite in February I believe, as the end of the Fed taper moves into sight.”

Nevertheless, Omicron keeps advancing around the world. As a result, health experts have warned that the battle against Covid-19 is far from over, despite the vaccine rollout and signs that Omicron causes less risk of hospitalization.

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Oil consumption could peak in 2022

On the other hand, the US Federal Reserve said it would end its pandemic-era bond purchases in March, paving the way for three interest rate increases that most Fed policymakers now believe will be needed next year.

Furthermore, the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, will meet on 4 January to decide whether to go ahead with a 400,000 barrels per day (bpd) production increase in February.

Particularly, Russia believes oil prices are unlikely to change significantly next year with demand recovering to pre-pandemic levels only by the end of 2022, Deputy Prime Minister Alexander Novak said on Friday.

Finally, global oil demand recovered from the historic demand destruction of 2020. During this year the world began to recover from the coronavirus pandemic, and overall world consumption potentially could hit a new record in 2022 – despite efforts to bring down fossil fuel consumption to mitigate climate change.

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