Oil prices were hovering at around $70 per barrel on Wednesday morning, with big swings on both benchmarks in recent days following last week’s massive drop in prices.
Brent Crude rose 5.04 per cent to $72.72, whole WTI went up 4.91 per cent to $69.43 by 1130GMT – with the world awaiting the effects of the Omicron variant on the vaccine rollout and the nascent post-lockdown economic recovery.
There are continued concerns on the effect the new variant will have on demand, particularly if air travel is reduced and social distancing measures return to major economies.
This caused both benchmarks to drop by over 10 per cent last Friday to under $70 per barrel, a stark contrast to the multiple rallies across October and early November.
The Organization of the Petroleum Exporting Countries and its allies including Russia (OPEC+) are expected to meet tomorrow, with speculation over its future production plans.
It is unclear whether OPEC+ could pause plans to add 400,000 barrels per day through 2022 and limit production.
Oil prices remain volatile amid uncertain winter demand
A Reuters survey found OPEC pumped 27.74 million bpd in November, up 220,000 bpd from the previous month, but that was below the 254,000 barrels per day increase allowed for OPEC members under the OPEC+ agreement.
This would previously have been seen as a major blow in a recovering economy, following OPEC rebuffing US President Joe Biden’s calls to produce more oil .
The row culminated with the White House committing to releasing 50m barrels of oil from its strategic petroleum reserves (SPR).
It even managed to create a coalition with China, India, South Korea, UK and Japan to release strategic reserves into the market to lower prices and meet growing consumption demand.
Whether this will now be considered necessary depends on the deadliness of the new variant and whether it can evade the protection of vaccines administered to hundreds of millions of people.
Craig Erlam, senior market analyst, UK & EMEA at OANDA, told City A.M. that the price drops over recent weeks have partially been a correction to an expensive market.
He anticipates continued instability and big price swings, unless output plans are changed and more is known about the effects of the new Covid-19 variant.
He said: “Oil prices are extremely volatile right now. It was a heavily overbought market that’s been given plenty of reason for a correction. The SPR release, oversupply forecasts and now this. Omicron is obviously the most negative for the price and until we know more, it will likely remain very volatile. With OPEC+ to come later in the week as well, there’s certainly potential for many more big swings and if they don’t change their output plans, further downside.”
While the Omicron variant appears as contagious as first feared, with 22 cases already confirmed in the UK – so far the death rate has not increased in countries with high numbers of cases like South Africa.