Oil Caps Biggest Selloff of Month on Virus, Manchin Fallout

Oil posted its worst single-day rout this month on growing concern over the rapid spread of the omicron virus variant and turmoil for President Joe Biden’s economic plans.

Futures in New York closed down 3.7%, trading around $68 a barrel, as the January contract expired on Monday. Pessimism prevailed across financial markets as rising infections prompted restrictions on travel, while U.S. economic sentiment took a hit after Biden’s $2 trillion spending package was derailed by the surprise revolt of Senator Joe Manchin.

“The uncertainty around the response to omicron” is fueling the fear and volatility in oil markets, said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. While some governments at first said they were trying to avoid lockdowns, more may be forced to capitulate as omicron takes hold.

Oil’s market structure is also showing signs of weakness. West Texas Intermediate futures for delivery in January slipped to a discount to February contacts as omicron darkened the near-term demand outlook. The Brent prompt spread was also in a bearish contango pattern.