What can the Omicron variant mean for oil traders?

What can the Omicron variant mean for oil traders?
What can the Omicron variant mean for oil traders?

Oil markets plummeted last Friday, dwarfed by news of the pandemic from South Africa.

Doctors from Botswana announced last week that they have spotted a new variant of the coronavirus, named the Omicron variant. Equity and oil markets were affected by the news and traders and investors abandoned riskier assets and jumped into safe haven assets.

In the US, Friday was also the day after Thanksgiving, and many traders were celebrating with families instead of following the markets, despite the fact that the exchanges were open. These sub-normal volumes contributed to the volatility.

At close of trading on Friday, the plunged 13% to $ 68.15 a barrel and is 11.6% to $ 72.72 a barrel.

The decline was mainly triggered by fear and uncertainty. Very little is known about the Omicron variant, and many experts and members of governments had prepared for the worst.

Since November 26, a total of 56 states have called for restrictions such as border closures or access restrictions to block the Omicron variant.

Given these reactions to the new variant and the uncertainty fueling volatility, traders should consider that there could be an impact on demand and price forecasts.

1. Is the decline just a temporary pause in the price rise?

Prices began to rise on Monday, with Brent at $ 77 a barrel, before returning to $ 73.44. The WTI hit $ 72 a barrel and then returned to $ 69.95 at close of trade. Indications are starting to circulate about the lower severity of the Omicron variant compared to other variants of the coronavirus and some countries have reduced the duration of travel restrictions.

However, oil prices resumed on Tuesday and Wednesday after the Biden administration announced it was considering tighter restrictions and quarantine procedures that could make travel to and from the United States more difficult.

The fear of a price collapse does not appear to have subsided until Wednesday.

2. What does this mean for price predictions?

With Brent and WTI below $ 70 a barrel at the close on Wednesday, OPEC and AIE appear to be more accurate than those of the big banks. OPEC and AIE may have made better forecasts, but they did not know why or how the market would experience this decline.

With just one month left in 2021, prices seem unlikely to hit $ 90 a barrel this year, as some banks had predicted. Banking institutions seem convinced that oil prices may be destined to rise. Goldman Sachs even posted a note in which

why analysts believe this selloff is over and why oil prices should rise under these circumstances.

3. How will this affect OPEC + ‘s monthly decision?

After the collapse in prices, OPEC and OPEC + have postponed their summits by one day, to have more time to evaluate the market trend in the light of the latest news. OPEC met yesterday but did not talk about oil production policies during the summit. The cartel focused on bureaucratic issues such as the appointment of the new Secretary General.

There are some indications that OPEC + may decide to pause the monthly increase of 400,000 barrels a month during Thursday’s summit, but there is no indication on the length of the pause.

On Wednesday, an OPEC report it came into possession of showed that OPEC forecasts indicate a surplus of 2 million barrels per day in January 2022, 3.4 million in February 2022, and 3.8 million barrels in March 2022.

According to many analysts, for this reason OPEC + will not proceed with this expected increase, but we do not know if it will.

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