- Oil fell more than 6% on Friday as investors dropped more risky assets following the emergence of a new Covid variant.
- Both Brent and WTI futures were heading for their biggest one-day decline since mid-July this year.
- “We can very, very quickly go from a very tight market to an oversupplied market,” said Saxo Bank’s Ole Hansen.
Oil prices were already heading for a weekly loss after the US released some crude oil from its strategic petroleum reserve to try to curb soaring energy prices.
But after South African scientists said they had discovered a small number of a new variant of COVID-19 that could prove more transferable, investors dumped crude oil futures and stocks on Friday in favor of perceived assets as a safe haven.
The variant – called B.1.1.529 – has a “very unusual constellation” of mutations, meaning the body’s immune response may not work and vaccines may be less effective against it, scientists told reporters at a news conference, according to Reuters. The World Health Organization has convened a special meeting on Friday to discuss the new variant.
The United Kingdom banned flights from six African countries in response, underscoring concerns about the impact of the new variant on economic growth. In recent weeks, Europe has been in focus as COVID-19 cases rose sharply, leading to shutdowns and restrictions in Austria, Italy and other countries. Earlier this week, the WHO warned that coronavirus could require an additional 700,000 victims by March.
Futures on Brent oil had last fallen 5.7% on the day, set for their biggest one-day drop since mid-July, while West Texas Intermediate crude was 6.8% lower at $ 73.00 a day. barrel.
“The SPR release we had earlier in the week was a small factor. But what could really have an impact is if we start to see another lockdown and thereby see demand hurt, because we can do a lot, a lot. quickly go from a very tight market to an oversupplied market, “said Saxo Bank’s commodity strategist Ole Hansen in the bank’s daily podcast on Friday.
“It just makes it so much harder for OPEC + when they meet next Thursday,” Hansen added.
A number of countries other than the United States are considering releasing their own strategic stock.
But the Organization of the Petroleum Exporting Countries and its partners, such as Russia and Oman, have been wary of escalating coordinated production increases, as market observers largely expect an unwanted fuel overhang to develop next year.
The group of major oil producers, who meet next week to discuss supply policy, have agreed to raise crude oil production by a total of 400,000 barrels a day a month. However, given that OPEC itself is very cautious about the outlook for demand, it is unlikely that the pace will increase, especially now in the light of a new variant that could threaten activity such as air travel.
Commerzbank noted that OPEC’s advisory board believes that profits could grow in February to as much as 3.7 million barrels a day.
“This could lead OPEC +, at its meeting next week, to decide not to increase its oil production further in January and consider expanding supply by a smaller amount in the months thereafter,” said strategist Carsten Fritsch in a note.