Oil prices have fallen over two per cent on both major benchmarks, as Covid-19 cases soar across major economies such as US, China, France and the UK.
Brent Crude has dropped 2.2 per cent to $77.78 per barrel, while WTI Crude has declined even further by 2.31 per cent to $75.21.
Covid-19 cases have reached new pandemic highs across the globe, with infections driven by the highly transmissible Omicron variant.
While multiple reports suggest the latest variant is milder, the sheer number of cases has resulted in major economies across Europe such as Germany and France re-introducing restrictions.
There are now rising fears of reduced demand and a supply glut, with concerns over possible restrictions further reducing air travel demand and consumption.
Oil analysts have consequently lowered their price forecasts for 2022, according to a Reuters poll published on New Year’s Eve.
A survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022, about two per cent lower than $75.33 consensus in November.
It is the first reduction in the 2022 price forecast since the August poll.
Overall, both benchmarks recently posted their biggest annual gains since 2016, with Brent Crude ending the year up 50.5 per cent while WTI posted a 55.5 per cent increase, spurred by the global economic recovery from the COVID-19 pandemic slump and producer restraint.
However, the oil market has endured a wild journey in recent months following a sustained period of ultra-low prices amid multiple lockdowns across the world.
Prices rallied in autumn to three-year-highs of $86.70 per barrel on the Brent Crude benchmark, and to seven-year-highs of $85.41 on WTI Crude.
The benchmarks then reported price drops of 13 per cent to below $70 per barrel after the emergence of the Omicron variant increased fears in the market of a return to lockdowns across key economies.
Prices have since recovered somewhat, with worries over the latest strain of Covid-19 beginning to ease following reports it is less severe than previous variants.
Nevertheless, with infections reaching record highs worldwide there is renewed concern over the new variant’s effect on consumer behaviour and the wider market.
Reuters understands the Organization of the Petroleum Exporting Countries and its allies such as Russia (OPEC +) will probably stick to the current plan to add 400,000 barrels per day of supply in February when it meets later this week on January 4.