Oil futures fell sharply Tuesday, under renewed pressure after the chief executive of Moderna Inc. warned that vaccines were likely to be less effective against the omicron variant of the coronavirus that causes COVID-19.
West Texas Intermediate crude for January delivery
fell $3.03, or 4.3%, to $66.92 a barrel on the New York Mercantile Exchange. January Brent crude
dropped $2.39, or 3.3%, to $71.05 a barrel on ICE Futures Europe, while February Brent
the global benchmark, was down $3.18, or 4.3%, at $70.04 a barrel.
Crude futures tumbled, alongside a renewed global fall in equities, after Moderna MRNA Chief Executive Stephane Bancel told the Financial Times that existing vaccines will likely be less effective against the omicron variant discovered late last week in southern Africa.
“This is raising concerns about far-reaching mobility restrictions to combat the omicron variant,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.
“It is not yet possible to accurately predict how big the impact will be on oil demand. The fact that the price has plunged by more than $10 since Friday suggests that serious effects are envisaged, however,” he said.
The threat to oil demand is genuine, said Louise Dickson, senior oil markets analyst at Rystad Energy, in a note.
“Another wave of lockdowns could result in up to 3 million bpd (barrels per day) of oil demand lost in the first quarter of 2022 as governments prioritize health safety over reopening plans, of which there is already telltale evidence, from Australia delaying its reopening to Japan banning foreign visitors,” she wrote.
Oil dropped sharply Friday, with the U.S. benchmark plunging 13%, after the discovery of the variant in southern Africa, with several countries moving to restrict flights from the region. Crude bounced in Monday trade, but ended the session with modest gains before coming under renewed pressure.
The price drop and accompanying worries about the variant’s effect on travel and activity are seen putting pressure on OPEC+ — made up of the Organization of the Petroleum Exporting Countries and its allies, including Russia — to pause monthly increases in oil production that would have lifted output by another 400,000 barrels a day in January.
OPEC+ is also weighing its response to the U.S. decision last week to release 50 million barrels of crude from its Strategic Petroleum Reserve — a move that was accompanied by releases in five other countries, including China and India. OPEC+ ministers are slated to hold a monthly meeting on Thursday.
Sticking with the planned 400,000 bpd increase is “virtually unimaginable in view of the latest market developments,” Fritch said. “In our opinion, any such decision would exert further pressure on oil prices in the current market environment, which is hardly likely to be in the interests of the OPEC+ members.”
The U.S. plan to release strategic reserves was already set to expand supply by around 850,000 bpd in January and February, he said, which will leave OPEC+ with little choice but to pause planned production increases for two months.