Oil prices slump 5% on COVID-19 variant fears amid oversupply concerns

Fri, 2021-11-26 16:16

Oil prices dropped more than 5 percent on Friday, falling to the lowest level in two months, as traders, already concerned about potential oversupply in the first quarter of 2022, added the emergence of a new COVID-19 variant to their list of worries.

Brent crude, the international benchmark, slid 5.8 percent to $77.44 a barrel at 2:16 p.m. Riyadh time, while the main US grade, WTI, fell 6.5 percent to $73.28. 

Brent closed at a three-year high of $83.40 on Oct. 26.

Airlines led equities lower as the UK halted flights from a number of southern African countries over concerns a new variant of COVID-19 may be more transmittable and deadly than any that have come before it, risking the global economic recovery.

Traders are also worried about looming oversupply from December after the US said it is releasing 50 million barrels from its strategic reserves in a coordinated move with other major oil-consuming nations including China, India, Japan, South Korea and the UK.

The Economic Commission Board, a panel of experts that advises ministers of the Organization of the Petroleum Exporting Countries, expects a surplus of 400,000 barrels per day in December, rising to 2.3 million bpd in January and 3.7 million bpd in February if consumer nations go ahead with the releases, an OPEC source told Reuters.

The forecasts cloud the outlook for a Dec. 2 meeting of OPEC and its allies, known as OPEC+, when the group will discuss whether to adjust its plan to increase output by 400,000 bpd in January and beyond.

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“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,” said PVM analyst Tamas Varga.

Oil demand will return to 2019 levels by the end of 2022, despite some delays in projects due to repercussions from the pandemic, Baker Hughes CEO Lorenzo Simonelli told Al-Arabiya.

National oil companies in the Middle East have been preparing for the increased demand, while international oil companies, especially those in North America, have been maintaining financial discipline in returning funds to shareholders, he said. However, some independent oil companies have already begun to increase their capital spending, he said.

Baker Hughes is seeing an improvement in oil and gas services activity, not only in North America, but also in international basins with low costs, he said.

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