Crude Oil Futures Drop on Reports of New COVID-19 Variant
Crude oil futures plunged in mid-morning trading in Asia on Nov. 26 as investors were startled by reports of a new COVID-19 strain from South Africa that appeared to evade immune responses, leading to a sharp sell-off in the wider financial markets.
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At 10:05 a.m. Singapore time (0205 GMT), the ICE January Brent futures contract fell $1.13/b (1.37%) from its previous close at $81.09/b, while the NYMEX January light sweet crude contract is $1.52/b (1.94 wt.%) lower at $76.87/b.
“South Africa made headlines yesterday with reports of a new strain of the coronavirus, which has led UK authorities to ban flights and impose quarantine measures on travelers from select African countries,” analysts at OCBC Research said in a note.
Oil prices fell in line with broader financial markets as investors abandoned riskier assets following reports of the new virus strain.
MSCI’s widest index of Asia-Pacific stocks outside of Japan fell 1.11% as of 0205 GMT, while Japan’s Nikkei fell 2.29%.
“Right now, only a small number of cases are known and nothing is known about its transferability, a key factor in determining whether variants bloom or wilt. But the new variant is considered remarkable enough that it is urgently researched in terms of both its transferability and the efficacy of vaccines against it,” ANZ analysts Brian Martin and Daniel Hynes said in a note.
The latest development will further cloud hopes for a rapid economic recovery as vaccinations increase around the world. Europe is in the midst of fighting its fourth or fifth wave of COVID-19 infections, with Portugal being the last to impose new restrictions again on November 25.
Investors also waited for the next OPEC+ meeting on Dec. 2 to see whether the group will delay its monthly output hike in light of the recent surge in COVID-19 infections and the release of strategic petroleum reserves by major oil-importing countries.
Media reports indicated that OPEC’s advisory body, the Economic Commission Board, expects the SPR releases to swell into a forthcoming surplus that will kick off in oil markets from the first quarter of next year. Analysts said this could prompt the OPEC+ group to suspend production increase.
“We expect the OPEC+ alliance to suspend its planned increase of 400,000 b/d for January at its meeting next week. This would protect the market from demand headwinds, such as renewed travel restrictions as a new wave of the pandemic Europe and the US, which would put the market in deficit in the first quarter,” said ANZ’s Martin and Hynes.