Just a few days ago, there was talk about the inevitable drive of oil $100 US per barrel,
Even US President Joe Biden’s plan to use his country’s reserves to ease the pain at the pumps for Americans appeared to some analysts as little more than a speed bump.
Oil prices were once again engulfed in pandemic fears, falling to levels not seen since September. North American benchmark oil price, West Texas Intermediate, was trading below USD 69 a barrel, down USD 10, or more than 13 per cent, on Friday.
The declines came amid concerns about a new variant of the COVID-19 virus that could dent both economic growth and fuel demand.
The news once again demonstrated how volatile the markets are still.
“The market, I think, forgot about COVID,” said Al Salazar, vice president of the intelligence division at the energy data analytics firm Enverus.
Of course, the pandemic never really went away. But many people got to see good days to come.
Bullish sentiment for oil was supported by larger price gains over the previous year, lifted by rising energy demand as economies emerged from pandemic lockdowns and health restrictions.
Friday, however, is a reminder of the trouble that the pandemic may still stir, and how panicked markets remain.
It is still early days to assess the potential impact of the edition. Canadian health experts caution against the alarm, saying there is no evidence existing COVID-19 vaccines will be effective.
But fears of investors that the variant could set off an economic recovery emerged sharply on Friday, stoking markets not just in oil and gas, but broadly.
And the roller-coaster ride is not over yet.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet next week. They are expected to discuss whether to accommodate plans to increase production to 400,000 barrels per day in January and beyond.
It is part of OPEC’s strategy to restore the deep cuts it made last year, when fuel demand and prices plummeted due to lockdowns and travel restrictions.
Now, the cartel will not only weigh the response to Biden’s strategy to release oil from the US Strategic Petroleum Reserve, but the impact of the variant.
“It’s a strange day, without question,” said Salazar.
“What does OPEC do now? Do they play I-told-you-so? Do they continue with their ramp up in production as they promised, like 400,000 a day? Would they fade it? Huh?”
Rory Johnston, founder of the Commodity Context newsletter, believes that if the sell-off in oil continues on Friday, there will be a lot of appetite among OPEC members for slowing returns to production.
“But I’d be surprised if the degree of sell-off [in oil] We’re watching The Last because it seems like so much has changed so quickly, and we still don’t have enough information about the new version.”
Indeed, the size of Friday morning’s drop in oil prices stunned market watchers, but it may take a few weeks to get a better idea of what that means. This is something that analyst Jeremy McCrea will be looking at.
He added that the “shocking” move in oil prices could also be the result of profit-taking by market speculators, noting how prices have risen recently. But it may still give some oil executives pause about whether they should increase their spending next year.
“What we’re really going to see is … such a huge drop in prices in one day. A lot of people start saying, ‘You know, maybe we don’t need to increase our spending yet. Let’s just pay off the debt. Let’s continue, given how much volatility we still see in this area,'” McCurry said.