Brent oil slumped as increasing coronavirus cases and a new Covid-19 strain raised concerns about the outlook for energy demand ahead of next week’s OPEC+ meeting on production policy.
Futures in London slid toward $80 a barrel as crude was swept up in a wave of caution across global markets. Virus cases are climbing in Europe and the US, while UK authorities will temporarily ban flights from some southern African countries and put travellers in quarantine over worries about the new strain.
“The new Covid variant found in South Africa is ringing fresh alarm bells,” said Vandana Hari, founder of Vanda Insights in Singapore. “I expect OPEC+ to stay the course on its tapering strategy but if the new variant emerges as a major problem in the coming days, it may end up pausing the monthly increments.”
OPEC+ meets Dec. 2 to decide production policy for January following the unprecedented move by the US and other nations to tap strategic stockpiles to tame rising energy prices. While delegates from the cartel have signalled that supply might have to be held back, Citigroup Inc. said reducing quotas would erode the group’s claim of providing public good by stabilising markets.
The alliance, which has been restoring 400,000 barrels a day of supply to the market each month, will have to consider internal projections that the reserves release will exacerbate a surplus it’s forecasting for early next year. The group has, however, been accused of creating “artificial tightness” by the International Energy Agency, which urged an accelerated return of supply.
Brent for January settlement tumbled 2.1% to $80.51 a barrel on the ICE Futures Europe exchange at 12:30 p.m. in Singapore. Prices are up 2.1% this week.
West Texas Intermediate for January fell 2.6% from Wednesday’s close to $76.36 on the New York Mercantile Exchange.
There was no settlement Thursday due to the Thanksgiving holiday and all transactions will be booked Friday.
OPEC’s ability to meet its expanding output targets has been hindered by under-performance by some members. The group delivered barely half the increase it had planned for October as African nations — particularly Angola and Nigeria — struggled with production losses.