Oil dropped further on Tuesday amid uncertainties surrounding OPEC+’s Thursday meeting and the U.S weekly oil inventories report expected to show an increase in crude inventories.
Brent crude oil, against which Nigerian oil is priced, fell to $83.72 a barrel as at 4:00 PM Nigerian time. While the U.S West Texas Intermediate oil dipped to $82.16 per barrel.
“The oil rally faces some headwinds this week,” said Jeffrey Halley of brokerage OANDA. “Oil looks very much like it is going to range-trade ahead of the OPEC+ meeting on Thursday although pre-meeting rumours will lead to some intraday volatility.”
Experts, in a Reuters poll, had said U.S crude oil inventories likely increased by 1.6 million barrels last week, American Petroleum Institute will release the first of this week’s two supply reports later today.
The price of Brent crude oil has risen by over 60 percent in 2021, hitting a three-year high of $86.70 last week as demand recovers and the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+ eases record output cuts slowly.
“Demand for crude oil is expected to rise as winter months approach,” said Naeem Aslam of Avatrade. “On the other hand, supply is expected to remain the same.”
OPEC and allies known as OPEC plus that cut production by 9.7 million barrels per day in 2020, has refused to up production to match demand despite calls from the United States and other consumers to do so. OPEC+ has stuck to a gradual monthly production increase of 400,000 bpd.
Oil Prices Drop 3 Percent on Tuesday After Moderna’s CEO Comment
Oil prices tumbled more than 3% on Tuesday after Moderna’s CEO cast doubt on the efficacy of COVID-19 vaccines against the Omicron coronavirus variant, spooking financial markets and adding to worries about oil demand.
The head of drugmaker Moderna told the Financial Times that COVID-19 vaccines are unlikely to be as effective against the Omicron variant of the coronavirus as they have been against the Delta variant.
Brent crude futures fell $2.32, or 3.2%, to $71.12 a barrel at 0912 GMT after slipping to an intraday low of $70.52, the lowest since Sept. 1.
U.S. West Texas Intermediate (WTI) crude futures fell $2.15, or 3.1%, to $67.80 a barrel, off a session low of $67.06, the weakest since Aug. 26.
Fed Chairman Jerome Powell will also tell U.S. lawmakers later in the day the variant could imperil economic recovery, prepared remarks show.
“The economic impact is driven by fear, and by the policy response… Fear is impacting travel. There are outright bans. But also the fear of being stranded which causes travel plans to alter,” Paul Donovan from UBS said in a note.
Oil plunged around 12% on Friday along with other markets on fears the heavily mutated Omicron would spark fresh lockdowns and dent global oil demand. It is still unclear how severe the new variant is.
With a weakening demand outlook , expectations are growing that the Organization of the Petroleum Exporting countries, Russia and their allies, together called OPEC+, will put on hold plans to add 400,000 barrels per day (bpd) to supply in January.
“We think the group will lean towards pausing output hikes in light of the Omicron variant and the oil stockpile release by major oil consumers,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.
Pressure was already growing within OPEC+, due to meet on Dec. 2, to reconsider its supply plan after last week’s release of emergency crude reserves by the United States and other major oil-consuming nations to address soaring prices.
“Following the global strategic reserve releases and the announcement of dozens of countries restricting travel… OPEC and its allies can easily justify an output halt or even a slight cut,” OANDA analyst Edward Moya said in a note.
Still, Citi analysts expect OPEC+ to continue to add more barrels in January.
New COVID Variant: Brent Crude Sheds Over $10 to $72 Per Barrel
Brent crude oil extended decline by over $10 on Friday on concerns that a new COVID variant called B.1.1.529 could force economies to impose restrictions and slow down global demand.
Brent crude, against which Nigerian crude oil is measured, dropped from $82.55 per barrel it attained on Thursday to as low as $72.09 on Friday at 7:20 pm Nigerian time before it rebounded slightly to $72.98 per barrel as shown below.
Global financial markets plunged across the board following reports that two cases of the new heavily mutated COVID variant from South Africa have been reported in Hong Kong and that the United Kingdom, one of the most affected nations during COVID-19 with over 140,000 deaths has halted flights from six South African nations to prevent a potential breakout of the new COVID variant.
Experts are concerned that the new variant outbreak would slow down global growth and increase global risks going into the new year.
According to Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA, “Even without severe restrictions, people will adopt more caution which will weigh on demand, as OPEC+ has repeatedly stated and factored into their models.”
However, heavy crude oil-consuming nations like the United States, China and others that have been calling for more supply will now enjoy substantial price reduction if this continues, therefore, Joe Biden may not need to release millions of barrels into the global market.
“Crude is back at levels last seen at the start of October and if this risk aversion continues in the weeks ahead, there’s plenty of room to fall. While OPEC+ would likely have avoided altering production plans next week or in the months following in response to the SPR releases, it may soon feel its hand is being forced. Next week may come too soon but another major outbreak could see them slam on the brakes,” Craig Erlam added.
Concerns Over New COVID Variant Plunges Brent Crude Oil Below $80 a Barrel
Concerns over rising new COVID variant in South Africa, Asia and other regions weighed on Brent crude oil and other financial assets on Friday.
The heavily mutated COVID variant called B.1.1.529 plunged Brent crude oil, against which Nigerian crude oil is priced, by almost 4 percent on Friday to trade below $80 a barrel for the first in months.
Brent crude dropped $3.16 or 3.8 percent to $79.06 per barrel while the US West Texas Intermediate (WTI) sheds $3.45 or 4.4 percent to $74.94 a barrel.
“Oil prices have gapped lower in Asia as the South African variant sparks’ growth fears, sending a wave of selling through Asian energy markets. Although gas and coal prices are holding steady, oil prices have tumbled,” stated Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.
Commodity prices dropped after the United Kingdom announced it has halted all flights from six South African nations. In Hong Kong, two cases of the new variant were detected on Friday.
“With US markets closed for holidays, investors are voting with their feet this morning. The one bull in the China shop that could truly derail the global recovery has always been a new strain of Covid-19 that swept the world and caused the reimposition of mass social retractions.”
This was coming two days after U.S President Joe Biden announced his administration plans to release millions of barrels of oil from strategic reserves to cool rising crude oil prices and rein in fuel price in the world’s largest economy.
Global financial markets experts are worried that the new variant will slow down global growth and force economies to start shutting down following the U.K announcement on Thursday.
Today, investors across the world will be paying attention to the outcome of meeting between WHO and South African officials, and the evolution of the B.1.1.529 variant. This will dictate market reaction for next week.
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