Oil down by over 6% as new strain of COVID-19 virus causes panic selling

The black liquid declined by over 5% today, hitting a two-month low as investors reacted to the new COVID-19 variant, adding to concerns that a supply surplus could hit the market.

Oil fell with global equities markets on fears the variant could dampen economic growth and fuel demand. Governments have started to enact restrictions as Britain and other European states have restricted travel from Southern Africa, where the variant was detected.

The global benchmark, the Brent crude is down 6.03%, currently trading at $77.26 a barrel while the U.S. benchmark, the West Texas Intermediate (WTI) crude is down 6.88%, currently trading $73 a barrel. Both benchmarks are heading for their fifth week of losses.

What you should know

• Investors are also watching China’s response to the U.S. release of millions of barrels of oil from strategic reserves in coordination with other large consuming nations, in an attempt to cool down rising oil prices.
• An Organization of Petroleum Exporting Countries and its allies (OPEC+) source told reuters that such a release is likely to swell supplies in coming months, based on findings of a panel of experts that advises ministers of the cartel.
• The OPEC+ source also said that the Economic Commission Board expects a surplus of 400,000 barrels per day (bpd) in December, rising to 2.3 million bpd in January and 3.7 million bpd in February if consumer nations went ahead with the releases.
• The forecasts could cloud the outlook for the next meeting, scheduled for the 2nd of December, where the cartel will decide whether to adjust its plan to increase output by 400,000 bpd in January and beyond.

PVM analyst Tamas Varga stated, “OPEC’s initial assessment of the co-ordinated (stockpile) release and the sudden appearance of a new variant of the coronavirus raises serious concerns about economic growth and the oil balance in coming months.”

Iranian production was also in focus, with indirect talks due to resume on Monday between Iran and the United States on reviving a 2015 nuclear deal that could lead to the lifting of U.S. sanctions on Iranian oil exports.

Eurasia analyst, Henry Rome, explained that the failure of Iran and the International Atomic Energy Agency to reach even a modest agreement on monitoring of Tehran’s nuclear facilities this week bodes poorly for next week’s talks.