Oil
Crude prices declined after initial lab results showed that two doses of the Sinovac COVID vaccine was ineffective in neutralizing the Omicron variant. With much of the emerging world dependent on the protection the Chinese vaccines offer, the short-term crude demand outlook could take a massive hit if the spread worsens across China and the emerging world.
WTI crude pared earlier losses after the EIA crude oil inventory posted a larger-than-expected draw of 4.58 million barrels last week. Demand is not looking too bad as petroleum product demand rose to a record high, gasoline and distillates inventories delivered surprise draws, and as US exports jumped back above the 3 million bpd.
Omicron worries will keep oil prices heavy as even the virus continues to spread quickly across heavily vaccinated countries. The UK reported 78,610 more COVID cases, the most since the pandemic began.
Crude prices turned positive after the Fed confirmed their hawkish turn and signaled they are positioning themselves to tackle inflation in the second quarter. The Fed is hoping to only deliver a few rate hikes next year and that should still allow the economy to grow by 4% next year.
Gold
Gold prices got knocked down after the Fed signaled inflationary pressures will force them to finish tapering by mid-March and that next year they could deliver three rate hikes, with an additional three in 2023. The risk that the economy could fall into recession in 2023 does not seem so unreasonable.
Gold’s weakness could be near its end as the Fed will be on autopilot until the March policy meeting.
Cryptos
Bitcoin and Ethereum rallied after the Fed showed they are turning more aggressive with rate hikes and significantly increased their inflation forecasts. The playbook for the next several months is that risk appetite could remain in place if the Fed only has to deliver only a few rate hikes next year, which would be great news for cryptos.