Oil rebounds to $76 on speculation Omicron-related drop overdone

Oil rebounded by almost 5% on Monday to $76 a barrel as some investors viewed Friday's slump in oil and financial markets on concern about the Omicron coronavirus variant as overdone.

The World Health Organisation has said it could take weeks to understand the variant's severity, although a South African doctor who has treated cases said symptoms so far seemed to be mild.  

Brent crude was $3.24, or 4.5%, higher at $75.96 by 1047 GMT, after sliding $9.5 on Friday. US West Texas Intermediate (WTI) crude was up $3.12, or 4.6%, at $71.27, having tumbled $10.24 in the previous session.

"We saw some correction as Friday's plunge in oil prices has been overdone," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Friday's slide, the biggest one-day drop since April 2020, reflected fears that travel bans would hammer fuel demand. The plunge was exacerbated by low liquidity due to a US holiday, as demand fears did not justify such a fall, analysts said.

"The fear factor had its grip on financial markets on Friday," said Norbert Ruecker of Swiss bank Julius Baer. "Fundamentally, the announced and enacted international air travel constraints cannot explain such a sharp slump."

A semblance of calm also returned to the financial markets on Monday as investors waited for more details of the variant. European shares rebounded, while safe haven bonds lost ground.

"I cannot help but feel that Friday's lows were probably the bargain of the year if you were an oil buyer, speculative or physical," said Jeffrey Halley of brokerage OANDA.

Japan said on Monday it would close its borders to foreigners, as the world's third-largest economy joined Israel in taking the toughest measures against the variant.  

The emergence of Omicron has created a new challenge for the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+, which meets this week to set policy.

The group has postponed technical meetings this week to gain time to assess Omicron's impact, but Russia said it sees no need for urgent action on the market, downplaying possibility of changes to the OPEC+ oil deal.  

Also on the oil market's radar this week, talks on reviving the 2015 Iran nuclear accord, that could add to global supply if a deal is reached, are resuming on Monday.