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Friday March 29, 2024

Oil tanks 10pc on demand fears over new Covid variant

By AFP & News Desk
November 27, 2021
Oil tanks 10pc on demand fears over new Covid variant

London: World oil prices slumped more than 10 percent on Friday, slammed by demand fear after the emergence of a new variant of Covid-19.

In late afternoon London trade, New York's WTI crude tumbled 11.3 percent to $69.53 per barrel, while European benchmark Brent North Sea oil retreated 10.2 percent to $73.81.

The two contracts briefly sank as low as $68.75 and $73.03 respectively -- levels last seen in mid-September.

"Crude oil prices have slumped sharply over concerns that this new mutation could add to the pressure on demand," said CMC Markets analyst Michael Hewson.

Traders are on edge after the B.1.1.529 variant of Covid-19 was detected in southern Africa.

Scientists warn the latest variant could be more infectious than Delta and more resistant to vaccines, potentially dealing a heavy blow to the global economic recovery.

"What a wild end to the week," Oanda analyst Craig Erlam told AFP. "Oil is among the assets taking a heavy beating on the variant news, falling ... as traders fret about the impact on restrictions and behaviour this winter. Even without severe restrictions, people will adopt more caution which will weigh on demand."

Haven investments the yen and Swiss franc rallied but the dollar floundered.

Share prices of airlines and tourism groups dived as countries put in new travel restrictions, while there were big losses also for energy groups.

"Stock markets fell sharply... as fears a new Covid variant will lead to fresh lockdowns, mobility restrictions and lower economic growth," noted Neil Wilson, chief market analyst at Markets.com.

Major US stock indices dropped at the open of Friday´s holiday-shortened session. About twenty minutes into trading, the benchmark Dow Jones Industrial Average was down 2.5 percent at 34,905.54. The broad-based S&P 500 fell 1.7 percent to 4,619.45. The tech-rich Nasdaq Composite Index lost 1.4 percent to 15,629.51.

"The most worrying thing about the new strain at the moment is how little we know about it, with early indications being that it could be more problematic than Delta," the earlier variant which harmed hiring and growth in the United States in the third quarter, said Craig Erlam of Oanda.

Europe´s main equity markets were down at least three percent in afternoon trading following sharp falls in Asia.

"It´s Black Friday today for the retailers, but it´s ´Red Friday´ right now for the stock market," said Patrick O´Hare at Briefing.com.

Justin Tang at United First Partners said that while the latest news was worrying, "the world has gone through this before" with the Delta variant, adding that governments were more adept at knowing how to deal with the situation.

"Mutations are expected and not something unknown," he said.

The World Health Organization cautioned against imposing new travel restrictions over the new Covid-19 variant B.1.1.529.

It added that it would take "a few weeks" for researchers to understand the impact of the variant detected in South Africa.

Traders were keeping a wary eye also on the Federal Reserve as the US central bank considers its next moves to fight soaring global inflation, which is an additional threat to economic recovery.

Some officials at the bank have flagged a quicker pace of tapering the Fed´s vast bond-buying stimulus programme, with a hike in US interest rates coming possibly in the middle of next year.

"The increased openness to accelerating the taper pace likely reflects both somewhat higher-than-expected inflation over the last two months and greater comfort among Fed officials that a faster pace would not shock financial markets," Goldman Sachs said in a note to clients.

However, Briefing.com´s O´Hare said the emergence of the new variant, if it is confirmed to be more transmissible and evade current vaccines, could change the view on the Fed´s move.

"The manner in which the B.1.1.529 variant evolves, though, could potentially change the market´s perspective on the matter," he said.

"Certainly, in the heat of today´s headline moment, there will be added concern about the Fed making a policy mistake" if it accelerates the tapering of its stimulus programme.

Meanwhile, oil investors were also watching China's response to the U.S. release of millions of barrels of oil from strategic reserves in coordination with other large consuming nations, part of its bid to cool prices.

Such a release is likely to swell supplies in coming months, an OPEC source said, based on findings of a panel of experts that advises ministers of the Organization of the Petroleum Exporting Countries.

The Economic Commission Board expects a surplus of 400,000 barrels per day (bpd) in December, rising to 2.3 million bpd in January and 3.7 million bpd in February if consumer nations went ahead with the releases, the OPEC source said.

The forecasts cloud the outlook for a Dec. 2 meeting of OPEC and its allies, known as OPEC+, when the group will discuss whether to adjust its plan to increase output by 400,000 bpd in January and beyond.

"OPEC's initial assessment of the co-ordinated (stockpile) release and the sudden appearance of a new variant of the coronavirus raises serious concerns about economic growth and the oil balance in coming months," PVM analyst Tamas Varga said.