U.S. oil prices plunged more than 10% Friday, dragging crude below $70 a barrel, as investors grow increasingly concerned that the newly-discovered Covid variant will dent energy demand over the coming months.
The World Health Organization called the Covid strain, known as B.1.1.529, a 'variant of concern' ahead of the agency's emergency meeting Friday following the discovery of the infection in a traveler visiting Israel from South Africa earlier this week. It has also been identified in Hong Kong, according to U.K. health officials, and is thought to be resistant to current vaccine structures.
The downdraft in crude may offer some respite, however, in President Joe Biden's struggle to tame global energy prices following a surge earlier this week in the wake of his decision to release 50 million barrels of crude from the Strategic Petroleum Reserve.
However, the move also comes just days ahead of a December meeting of OPEC ministers in Vienna, many of whom have resisted calls to quicken the pace of paring their years-old agreement on production cuts, which have helped lift global crude prices to the highest levels in seven years last month.
"The OPEC+ alliance called the SPR release 'unjustified' given current conditions and as a result they may opt to reduce future production hikes, currently running near 12 million barrels per month," said Ole Hansen, head of commodity strategy at Saxo Bank. "The group will meet on December 2, and given the prospect for renewed Covid demand worries adding to the assumption of a balanced oil market early next year, OPEC+ may decide to reduce planned production increases in order to counter and partly offset the U.S. release."
"With these developments in mind, the only thing oil traders can be assured of is elevated volatility into the final and often low liquidity weeks of the year," he added.
WTI futures for January delivery were marked 11.7% lower on the session at $69.33 per barrel while Brent crude contracts for the same month, the global benchmark, plunged $8.84 to $73.35 per barrel.
OPEC cut is 2021 demand forecast earlier this month by 330,000 barrels per day -- a figure that nearly matches the 400,000 barrels it has committed in increased production -- arguing that surging COVID infection rates in Europe will slow industrial purchases and rising share production in the United States will ultimately boost global supplies.
International Energy Agency director Fatih Birol, however, disagreed, telling CNBC that "the main reason for the high prices is the position of some of the main suppliers of oil and gas."
“Actually, some of the major tensions in today's markets can be seen artificial constraints," he said. "Today, on the oil markets, we see that about 6 million barrels per day of free production capacity falls on the OPEC+ countries."