Front-month WTI and Brent crude futures marked their biggest monthly net and percentage declines since March 2020 — the same month the World Health Organization declared the start of the COVID-19 pandemic. WTI crashed below zero dollars a barrel in April 2020. “COVID-19 is again at the heart of crude and other commodity losses — this time amid uncertainty around the newly identified omicron variant,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily note. Crude futures tumbled, alongside a renewed global fall in equities, after Moderna’s Chief Executive Stéphane 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 threat to oil demand is genuine, said Louise Dickson, senior oil markets analyst at Rystad Energy, in a note.

“Another wave of lock downs 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 sharly 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.

“The biggest potential surprise or outcome this week would be if OPEC scales back on production in response to the variant,” said Christian Busken, director of real assets at Fund Evaluation Group. “If it’s the Biden administration, which wants lower oil prices, versus OPEC, which benefits from higher prices, OPEC currently holds all the cards,” he told MarketWatch.   OPEC is scheduled to hold technical meetings via video conference on Wednesday and Thursday, ahead of the OPEC and non-OPEC ministerial meeting, also planned for Thursday.

Have a Great Day,