WTI rebounds back above $77.00 level, eyes monthly highs as sources say OPEC+ to continue output hikes

• WTI rebounded back above the $77.00 level on Thursday as oil continues to trade with a positive bias.
• OPEC+ is likely to stick to existing policy at the upcoming meeting, meaning another 400K BPD hike from February is likely.

Oil prices have spent Thursday trading within recent ranges, with front-month WTI futures in recent trade rebounding from a brief dip back under the $76.00 level to back above the $77.00 mark and eyeing a test of Wednesday’s post-bullish inventory monthly highs at $77.30. At present, WTI is trading just over 50 cents highs on the session, a continuation of the positive bias that has lifted the American crude oil benchmark from as low as $72.50 at the start of the week to current levels over $4.50 higher.

The main theme driving oil prices on Thursday continues to be the broadly upbeat mood in markets more broadly. US equities are currently trading at record levels with the S&P 500 close to 4800. Market participants have become substantially less pessimistic over the last week or so about how they view the Omicron Covid-19 variant impacting the global economy and crude oil demand – a succession of studies as well as real-time data all points to the fact that the new variant is substantially milder than anything that has come before it. Meanwhile, governments are for the most part not returning to the strict lockdowns seen in the past, as Omicron hasn’t shown much threat of overwhelming health care systems with sick patients (yet).

Should the positive Omicron vibes continue to support risk appetite into the new year, that points to continued upside risks for crude oil prices. In terms of other news being discussed by oil market participants on Thursday, China cut its first batch of 2022 crude oil imports to oil refiners by 11%. This has been framed by local analysts who are more “in the know” that this is a way to put pressure on small refineries to iron out inefficiencies rather than having any bearing on overall Chinese demand for oil imports. That could be why the news hasn’t had a lasting impact on prices.

Elsewhere, according to four sources speaking with Reuters, OPEC+ is likely to stick to existing policy at the upcoming 4 January 2022 meeting, which means hiking output by 400,000 barrels per day (BPD) from the start of February. The sources cited an easing of concerns about the impact that the spread of the Omicron variant of Covid-19 will have on demand and the recent recovery in prices as increasing the cartel's confidence that further output hikes remain appropriate. This is in line with market expectations (for no change in OPEC+ policy) and has thus not impacted crude oil prices.