Oil declines, gold rises on heightened Omicron concerns

SINGAPORE, BENGALURU (BLOOMBERG, REUTERS) - Oil extended declines while gold rose as the rapid spread of the Omicron variant of the coronavirus increased concerns about the outlook for the market, including energy.

Oil futures in London fell below US$72 a barrel after slipping 2.2 per cent last week. Covid-19 infections are rising from the United States to Europe as the authorities struggle to tame the spread of Omicron. That has led to some nations placing restrictions on air travel and there are fears that further lockdowns may be implemented, curbing the movement of people and sapping demand for crude and oil products.

The oil market structure is also showing signs of weakness. The prompt timespread for Brent once again flipped into a bearish contango on Monday (Dec 20), indicating oversupply could be on the horizon through early 2022.

Bearish headwinds are mounting for the crude market moving into the holiday period, when thinner trading volumes can exacerbate prices swings.

"We can look forward to a week of lot of volatility," said Mr Jeffrey Halley, senior market analyst at Oanda Asia Pacific. "But it's dangerous to assume that oil will plunge further from here because Opec+ is sitting there watching, and they have left themselves the room to react very quickly if they need to."

In contrast, gold prices edged higher on Monday, hovering near a three-week high hit in the previous session, as fears over the rapidly spreading Omicron coronavirus variant boosted the metal's safe-haven appeal.

Spot gold was up 0.2 per cent at US$1,800.42 per ounce by 1.13am GMT. US gold futures were down 0.2 per cent at US$1,801.50.

The US dollar index hovered close to a three-week high hit in the previous week.

Demand in Asia is softening, central banks are pivoting towards tighter monetary policy to try and rein in rising inflation, and President Joe Biden's economic agenda saw a setback after Senator Joe Manchin rejected a spending package.

New York state broke a record for new infections and New York City Mayor Bill de Blasio called on the federal government to step up supplies of tests and treatments to the city amid a spike in infections caused by Omicron.

Germany, just recovering from a wave caused by the Delta variant, is headed towards another surge caused by Omicron, the health minister warned.

The possibility of more Covid-19 restrictions being imposed ahead of the Christmas and New Year holidays loomed over several European countries as the Omicron variant spreads rapidly.