Oil prices surged this week as omicron demand destruction fears eased despite major concerns about the spread of the virus, says Phil Flynn of the PRICE Futures Group.

Biden vowed that we were not going to go back to a major lockdown like we did in 2020, and he even acknowledged the good work by the Trump administration for developing the vaccines, while still acknowledging that’s about the only thing that he and former President Trump agree on. Yet, omicron may already be behind us as the CDC believes the wave may peak in January.

From an oil demand perspective, if we’re not going to lock down the economy and Omicron peaks, then the selloff that we’ve seen in the oil market in recent weeks is obviously way overdone. In fact, if you look at the early indication of oil inventories, they are tightening around the globe and that trend should accelerate in the coming weeks.

The American Petroleum Institute reported that US crude supplies fell 3.670 million barrels, which continues to drive US inventories further below the average range for this time of year. The big building gasoline supplies of 3.701 million barrels help keep the market reaction subdued. Still, from a seasonal perspective, this time of year gasoline inventory should be building, and we are still below average right now.

The export window for US refiners is very good with our cheap crude and the exports of gasoline should pick up in the coming weeks. The API did report a slight drop in distillate inventories of 849,000 barrels.

Oil prices are also getting support from the European energy crisis shortsighted thinking when it came to their energy transition that has left the country vulnerable, and have been reduced to burning dirtier fuels to make up for all the green energy that can’t be produced. Russia has reversed gas flows as winter hits Europe hard. This is going to be supportive not only for oil, but for US natural gas prices as well. One of the warmest Decembers on record has kept natural gas prices at bay here in the United States but in Europe, they continue to soar to all-time highs.

We always get concerned about crazy moves and oil and natural gas as we get around the holidays. The fundamental outlook for both oil and gas look extremely bullish. One might assume that if winter shows up here in the United States with a strong global market, we could see a big rebound in natural gas. Weather is always iffy, and it might be a good idea to put on long-term hedges for natural gas as we still see a very tight market going into the new year. Oil and gasoline traders should be putting on hedges as there is still significant upside risk in this marketplace, and this might be a great chance to put on long-term options strategies as well, because the long-term outlook for oil in the year to come is very bullish.

Learn more about Phil Flynn by visiting Price Futures Group.