Oil rebounded from Friday’s omicron-driven rout as traders assessed the risks to global demand from the new variant, and speculation mounted that OPEC+ may decide this week to pause output increases.
Brent rallied, climbing along with West Texas Intermediate, after the global benchmark posted the seventh largest ever dive in last week’s final session. Crude, however, pared some of its gains as Japan said it would ban the entry of foreign visitors due to concern over the new Covid-19 strain. With cases seen from Hong Kong to Canada, the World Health Organisation said that understanding the variant will take days to several weeks.
Oil has slumped since hitting a multi-year peak in late October as leading consumers including the US announced releases of crude from strategic stockpiles to combat rising prices. The sell-off deepened late last week with the emergence of omicron, which prompted governments to embark on a slew of measures to contain the new challenge, including bans on flights. Goldman Sachs Group Inc. said the magnitude of oil’s drop seemed “excessive”.
“The sell-off on Friday appeared a complete overreaction,” said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. “While it’s still too early to estimate what this could mean for oil demand, we think the market will find some support as opportunistic buying emerges.”
The threat from the new variant will be weighed this week by the Organisation of Petroleum Exporting Countries and its allies, which will meet to assess production policy. The alliance is moving two technical meetings to give its committees more time to evaluate the impact of the strain. The OPEC and broader OPEC+ meetings will go ahead as planned on Wednesday and Thursday.
The group — which had been set to add 400,000 barrels a day — is increasingly inclined to ditch that plan, according to delegates who declined to be identified. Vitol Group said OPEC+ will likely now take a cautious stance, while UBS Group AG said the alliance could pause production or even cut it.
Brent for January settlement rose 3.6% to $75.31 a barrel on the ICE Futures Europe exchange at 1:07 p.m. in Singapore.
Earlier on Monday, prices rose as much as 5.2% in intraday trade after ending 11.6% lower on Friday.
WTI for January delivery climbed 4.3% to $71.07 a barrel on the New York Mercantile Exchange.
The fall in prices is “likely to see OPEC suspend its scheduled 400,000-barrels-per-day increase for January,” Hynes said.
While the WHO indicated symptoms linked to the new strain have been mild, governments and drugmakers are on alert. The UK will convene an urgent meeting of Group of Seven health ministers later Monday, and in the US, President Joseph Biden will give an update on his administration’s response.
Much of the concern centers on the degree to which existing vaccines will be effective. Anthony Fauci, the top medical advisor to President Biden, told him that these are likely to provide “a degree of protection” against severe cases. Separately, Moderna Inc. said the variant may elude current vaccines.
Brent remains backwardated, a bullish pattern with near-term prices above longer-dated ones. The benchmark’s prompt spread was $1.11 a barrel on Monday, down from $1.30 on Thursday.
Crude’s slump on Friday was initially driven by revived fears of widespread lockdowns, but losses deepened as the commodity sank through key technical levels. Algo-driven selling and options trading also played a part.