Oil Falls 9% As New Covid Variant Raises Global Demand Concerns

Working oil pumps against the sunset sky.

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Oil prices fell to their lowest level in more than two months on Friday, as a new strain of Covid-19 raised fears of a slowdown in demand along with an increase in supply.

The fall came amid widespread sell-off in the market when Dow futures fell more than 800 points. The World Health Organization warned on Thursday about a new variant of Covid found in South Africa. It could potentially be more resistant to vaccines due to its mutations, although WHO said further research is needed.

Oil in the US fell 9.2%, or $ 7.23, to $ 71.16 a barrel. Brent crude futures fell 8% to $ 75.57 a barrel.

Reduced travel and potential new constraints that could hit demand will come just as supply rises.

“It looks like the opening of the COVID-19 variant in southern Africa is scaring markets around the world. Germany is already restricting travel from several countries to the affected region, ”said John Kilduff, partner at Again Capital. “The last thing the oil complex needs is another threat to the restoration of air transportation,” he added.

On Tuesday, the Biden administration announced plans to free 50 million barrels of oil from the Strategic Oil Reserve. The move is part of a global effort by energy-consuming countries to contain the rapid rise in fuel prices in 2021. India, China, Japan, South Korea and the United Kingdom will also release some of their reserves.

“This [the sell-off] due to concerns about a significant oversupply in early 2022, which should be caused by the forthcoming release of strategic oil reserves in the United States and other major consumer countries, as well as the continuing sharp increase in the number of new cases of coronavirus “, – said analysts at Commerzbank. an even more transmissible variant of the virus was discovered in South Africa, leading to a marked increase in risk aversion in financial markets today. ”

OPEC and its oil production allies are set to meet on December 2 to discuss production policies for January and beyond. The group has gradually eased the historic production cuts it agreed to in April 2020 as the coronavirus eroded demand for petroleum products, restoring 400,000 barrels of oil per day to the market each month.

The group maintained a gradual cut despite calls from the White House and others to increase production as oil prices rose to multi-year highs. West Texas Intermediate crude oil futures hit a seven-year high in October, while Brent crude rose to a three-year high.

US oil is now down more than $ 10 from an October high of $ 85.41.

“The coordinated SPR issue also gets a second look, especially when OPEC condemns it and claims that the issue will bring the global market back into surplus. Release is much more than just a drop in the ocean, ”added Kilduff.

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