Brent crude is struggling to nurse deep wounds inflicted from last Friday's brutal selloff despite investors reassessing the impact of the new Omicron Covid variant.

After dropping more than 10% in the previous session (Friday), it is fair to say that the past few days and weeks have not been kind to brent crude. Things started going downhill for oil bulls after the announcement of a US coordinated release of strategic reserves earlier in the month. With the new coronavirus variant in town triggering fresh travel restrictions across the globe, this certainly does not bode well for the demand outlook - especially when factoring in the rising Covid cases in Europe.

Will Omicron menace cripple oil bulls?

According to the World Health Organization (WHO), the heavily mutated Omicron coronavirus variant is likely to spread across the globe and possesses a very high risk of infections surges.

Indeed, a growing number of countries have reported confirmed cases of the variant, including the United Kingdom, Germany, Hong Kong, and France among many others. When considering how the first case of Omicron was detected in South Africa on November 9, it was taken a short period for the highly mutated strain to spread its poisonous tentacles across the world. With more than 40 countries imposing travel restrictions from several African countries thanks to the variant, oil bulls could be in trouble.

What does this all mean for OPEC+?

The next few days promise to be tense for OPEC and its allies as they decide how to respond to Omicron. One could already feel the heightened level of caution from OPEC+ after the Joint Ministerial Monitoring Committee (JMMC) and Joint Technical Committee meetings were postponed to get more information about the current events. Nevertheless, the OPEC and OPEC+ meetings will go ahead as planned on Wednesday 1st and Thursday 2nd of December.

Since OPEC+ has already decided to increase production by 400,000 barrels per day (bpd) in December, any decision this week will be for January 2022.

Expectations are mounting over the cartel ditching its planned 400,000 bpd supply increase in January.

This could be based around the Omicron variant threatening oil demand recovery and a US coordinated release of strategic reserves with other countries such as China, India, and Britain among others.

Should OPEC+ suspend the 400,000 bpd production increase in January, oil bulls could be thrown a lifeline – ultimately pushing prices higher. However, if the cartel sticks to its original plan, the path of least resistance for oil will remain south.

Keep an eye on Strategic Petroleum Reserves

In a move that may pressure oil down the road, the Biden administration’s envoy recently repeated that the United States was ready to release more crude from the strategic reserves if needed.

It’s worth keeping in mind that two days before Thanksgiving, Biden announced that the US would release 50 million barrels from the strategic reserves in an effort to tame inflation.

The idea of the US and other countries flooding markets with oil at a time where the Omicron variant could threaten oil demand recovery has the potential to limit oil’s upside gains.

Is brent crude poised for a steeper decline?

Brent crude remains under intense pressure on the daily charts with bears drawing strength from last Friday’s heavy selloff. There have been consistently lower lows and lower highs while the MACD trades to the downside.

Given how prices have already closed below the 200-day Simple Moving Average, bears seem to be in a position of power with the next key level of interest found at $70. A solid breakdown below this point could open the doors towards $68.20 and $65.00, respectively. For bulls to jump back into the game, prices need to push back above $80.

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