The discovery of a new variant of the coronavirus that causes COVID-19 sent crude prices plunging Friday, giving major oil producing nations a reason to pause planned production increases while blunting criticism from the U.S. and other major energy consumers, analysts said.
A regularly scheduled meeting in the coming week of members of the Organization of the Petroleum Exporting Countries and their allies — known together as OPEC+ — was already in focus after the U.S. on Tuesday released 50 million barrels of crude from its Strategic Petroleum Reserve in a move coordinated with five other countries: China, India, Japan, South Korea and the U.K.
The move came after OPEC+ rebuffed calls by President Joe Biden and other world leaders to speed the pace of planned production increases, with the group instead sticking to a timetable that boosted output in monthly increments of 400,000 barrels a day. News reports said OPEC+ members, in response to the coordinated release, were thinking about pausing those production increases, which helped account for oil’s rise in the wake of the reserve release.
Analysts, however, noted that some OPEC+ members would potentially resist a pause out of fear of blowback from the U.S. and others. The carnage in the crude-oil market on Friday, with global benchmark Brent crude
plunging more than 10% and U.S. benchmark West Texas Intermediate crude
crashing more than 11%, could blunt those concerns, analysts said.
“While no one can predict the future, the timing of this week’s release was always questionable ahead of next week’s OPEC meeting. Looking at it now, it seems even more so,” said Michael Hewson, chief market analyst at CMC Markets, in a note.
OPEC’s Economic Commission Board, which advises the cartel, on Thursday said the release of crude from strategic reserves would leave the market oversupplied by 1.1 million barrels a day early next year, Reuters reported, citing an OPEC source.
That’s moving in the same direction as the U.S. Energy Information Administration’s Short-Term Energy Outlook from Nov. 9, which had forecast that growth in output by OPEC+, U.S. shale producers and other non-OPEC countries would leave the market oversupplied by 500,000 barrels a day early next year, noted Marshall Gittler, head of investment research at BDSwiss Group, in a note.
“The new COVID-19 variant and the risk of further travel restrictions and lockdowns will only confirm OPEC’s doubts about the trajectory of oil prices,” he wrote.