Following a slump triggered by the discovery of the new omicron Covid-19 version, oil rose more than 5% on Monday to above $76 per barrel ahead of the OPEC+ summit this week.
Crude oil was trading at $70.86 a barrel at the time of writing, up 3.9 percent from the previous day’s low. The price was $69.23 when it first went on sale.
Some investors interpreted Friday’s collapse in oil and financial markets as excessive while the world awaits more evidence on the Omicron coronavirus strain. Saudi Arabia’s energy minister said he was unconcerned about Omicron.
Brent crude, the European benchmark, rose 5.5 percent to $76.70 per barrel. West Texas Intermediate futures in the United States rose 6.6 percent to $72.63. This helped to recoup some of the losses from Friday’s 13% drop, fuelled by fears of travel disruptions and other reactions to the new model.
So far, omicron cases have been confirmed in a rising number of countries, including the United Kingdom, Canada, Australia, the Netherlands, Israel, Belgium, and Austria. The World Health Organization has designated it as a potentially dangerous variant, although South African scientists say it is not as deadly as Delta.
According to several analysts, the oil markets have overreacted to what is currently known about the omicron variant. OPEC+ is delaying its technical meeting, according to Phil Flynn of the Price Futures Group, to see how “things level off” in terms of market response. JP Morgan (JPM) analysts believe oil might reach $150 per barrel if OPEC+ does not increase supply.
Last week, the White House announced that the United States is set to release a huge batch of 50 million barrels of crude oil from its Strategic Petroleum reserve- the emergency reserve. The move is in action for cooling the rising oil prices. It will hit the market between mid to late December this year. Currently, there are roughly 605 million barrels of petroleum in the reserve. Therefore, they will be left with approximately 555 million barrels of crude oil after this release.
Going down the 2020 oil price lane of Covid
The COVID-19 epidemic wreaked havoc on the oil industry in 2020, driving U.S. oil prices to fall for the first time in history. On April 20, the May 2020 contract futures price for West Texas Intermediate (WTI) fell from $18 a barrel to about -$37 a barrel in a couple of hours.
Brent crude oil prices also plummeted, closing at $9.12 per barrel on April 21, down from $70 per barrel at the start of the year.
In reaction to the Covid-19 threat, governments worldwide imposed travel restrictions and halted business operations, causing oil demand to plunge dramatically in 2020.
However, the drop in oil prices was caused not just by Covid-19 but also by the oil price war that erupted in March when Russia and Saudi Arabia failed to reach an agreement on oil production levels.
By the end of the summer of 2020, oil prices had begun to recover as countries came out of lockdown and OPEC agreed to significant cuts in crude oil production. By November, Brent crude oil spot prices had risen to an average of $43 per barrel, thanks to vaccine development.