WTI drops towards $67.00 as broader market sentiment deteriorates amid vaccine efficacy concerns

• WTI is at multi-month lows close to $67.00 on Tuesday as risk-off returns to dominate global markets.
• The deterioration in sentiment has been attributed to pessimistic comments from the Moderna CEO on vaccine efficacy versus Omicron.

Oil markets slumped back to print fresh multi-month lows close to $67.00 level on Tuesday as Omicron Covid-19 variant-related fears returned to the market. At present, WTI is trading down close to $3.00 on the day. Traders and market commentators cited comments from the CEO of Moderna as triggering the renewed bout of risk-off related selling of risk assets such as crude oil.

In an interview with the Financial Times, Moderna Chief Executive Stéphane Bancel said that the effectiveness of existing Covid-19 vaccines will likely drop against the new Omicron variant. “I think it’s going to be a material drop (in efficacy)” he said, adding “I just don’t know how much because we need to wait for the data… but all the scientists I’ve talked to . . . are like ‘this is not going to be good’.”

The negative broad market reaction to these remarks demonstrates how sensitive markets are right now to headlines regarding Omicron. Depending on how vaccine-resistant the new variant is, its transmissibility and the severity of symptoms associated with infection, the outlook for the global economy is drastically different.

As far as crude oil markets are concerned, the best-case scenario would be that vaccines are still highly effective (which the Moderna CEO’s comments call into question) and that the severity of illness isn’t too bad. That would likely mean that international travel restrictions, as well as internal domestic travel restrictions, wouldn’t last long and the global oil demand recovery could rumble on. As things stand, it looks as though vaccines are going to be less effective against the new variant, meaning, at a minimum, tougher international travel restrictions will stay for a while, meaning a dampened outlook for jet fuel demand.

In terms of other crude oil relevant themes to think about; OPEC+ meets this week amid speculation the group will halt oil output hikes amid recent Omicron-related developments. Meanwhile, talks between signatories of the 2015 Iranian nuclear pact have restarted. While the tone from the Iranians has been initially positive, most strategists don’t have high hopes that a deal to remove US sanctions on Iranian crude oil exports will come any time soon, amid maximalist Iranian demands. Crude oil traders would also do well to keep an eye on US inventory numbers, with the private weekly API report out at 2130GMT on Tuesday ahead of Wednesday’s official EIA report.