Oil bounded upward Monday, briefly touching highs above $77 a barrel as some investors viewed Friday’s slump in oil and financial markets as overdone absent more data on the Omicron coronavirus variant.
If the new variant of the virus proves vaccine resistant or more contagious than other variants, it could impact travel, commerce and petroleum demand.
Top officials from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, echoed that view, with the Saudi energy minister quoted as saying he was not worried about the Omicron variant.
The World Health Organization has said it could take weeks to understand the variant’s severity, though a South African doctor who has treated cases said symptoms seemed to be mild so far.
Brent crude was up $2.28, or 3 per cent, at $75.02 a barrel by 12:29 p.m. Eastern (1729 GMT), having slid by $9.50 on Friday. U.S. West Texas Intermediate (WTI) crude was up $2.93, or 4.3 per cent, at $71.08, having tumbled by $10.24 in the previous session. Brent briefly surged above $77 a barrel, while U.S. crude went above $72.
Brent prices have given up $10 in the past two weeks.
“If the market is correct, our math implies that the market is pricing in 3.94 million barrels per day of demand destruction over the next month,” said Michael Tran, an analyst at RBC Capital Markets. “If that sounds excessive, trust your instincts.”
Friday’s slide, the biggest one-day drop since April 2020, reflected fears that travel bans would hammer demand. The plunge was exacerbated by low liquidity owing to a U.S. holiday and the expected demand hit does not justify such a fall, analysts said.
“The fear factor had its grip on financial markets on Friday,” said Norbert Ruecker of Swiss bank Julius Baer. “Fundamentally, the announced and enacted international air travel constraints cannot explain such a sharp slump.”
A semblance of calm also returned to wider markets on Monday as investors awaited more information about the new variant. European and Wall Street shares rose while safe-haven bonds lost ground.
“I can’t help but feel that Friday’s lows were probably the bargain of the year if you were an oil buyer, speculative or physical,” said Jeffrey Halley of brokerage OANDA.
Omicron has created a new challenge for OPEC+, which meets on Dec. 2 to discuss whether to proceed with a scheduled January increase to oil output. OPEC+ has postponed technical meetings this week to gain time to assess Omicron’s impact.
Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud on Monday said he was not worried about Omicron, Asharq Business reported, while his Russian counterpart said he sees no need for urgent action on the market.
Also on the oil market’s radar this week, talks on reviving the 2015 Iran nuclear accord, which could add to global supply if a deal is reached, resume on Monday.
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