Oil prices gained over 5% early on Monday, as traders were assessing the threat to demand from the Omicron Covid variant and the potential pause of monthly increases in production from the OPEC+ group.
As of 9:57 a.m. EST on Monday, WTI Crude was back to above $70 per barrel, at $72.28, up 6.25% on the day. The U.S. benchmark slumped to $69 on Friday when the market was panicking over Omicron, the new heavily mutated coronavirus variant detected in South Africa, which the WHO classified as a “variant of concern.”
On Monday, Brent Crude was trading at $76.29, up 4.91%, as of 9:57 a.m.
Panic over whether the still little-researched new variant will escape vaccine protection led to a crash on all markets on Friday, and crude oil led the plunge as countries started to announce bans on flights from African countries. The low liquidity on the oil market in the festive period in the U.S. also contributed to the collapse in prices, which was the largest one-day crash since April 2020.
On Monday, the markets were rebounding as traders, investors, and speculators are awaiting scientific evidence of whether Omicron should be as feared as the oil market appeared to fear on Friday.
The World Health Organization (WHO) said on Sunday that it was not clear yet if Omicron is more transmissible or if infection with Omicron causes more severe disease compared to infections with other variants, including Delta. Related: 3 Chip Stocks To Watch As The Semiconductor Shortage Worsens
Oil market participants are also weighing the possibility that the OPEC+ group will decide later this week to pause the monthly increases in its oil production. Some analysts believe that the alliance could scrap a January increase in production, although Russia and Saudi Arabia hinted on Monday that there is no need to rush to hasty decisions.
“We believe the group could take a pause in its current supply increases,” due to a potential hit to demand from Omicron, ING strategists Warren Patterson and Wenyu Yao said on Monday.
“The group may decide to postpone the January production increase or if necessary, temporary cut production into a period that was already expected to see the return of a balanced market,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank.
By Charles Kennedy for Oilprice.com
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