Oil Slumps as UK Plans to Move S.Africa, Others to ‘Red List’
Oil prices in Asia edged down on fears surrounding the South African coronavirus variant, which has sent a wave of selling through Asian energy markets. United Kingdom (U.K) plans to move the country to its red list, according to the health authority.
On Friday, tightening demand for Crude oil keep prices downward as concern mounted that demand could be hit after a highly transmissible variant of COVID-19 was discovered in South Africa and details emerged regarding the planned Strategic Petroleum Reserve release.
West Texas Intermediate futures plunged 6.8% to $73.07 a barrel intraday, the lowest level in about two months. Brent futures slumped 5.4% to $77.76.
Gas and coal prices are steady but oil prices have tumbled, OANDA senior market analyst Jeffrey Halley said in a Friday note. Oil is in danger of extending losses once Europe and North American markets resume as it is likely to find sellers on any intraday rally today, the analyst said.
The calculations surrounding the OPEC+ meeting next week could change depending on how the virus-led sell-off evolves and the World Health Organisation (WHO) level of concern over it, Halley said.
Halley cited OPEC+’s repeated words of caution regarding a pandemic resurgence eroding oil demand. However, Halley said OPEC+ is not likely to increase production above its scheduled 400,000-barrel-per-day target next week.
Halley does not see OPEC looking to cut production at this stage unless the market situation deteriorates next week and oil prices experience a much deeper slump.
“Oil prices have gapped lower in Asia as the South African variant sparks’ growth fears, sending a wave of selling through Asian energy markets.
“Although gas and coal prices are holding steady, oil prices have tumbled. Brent crude has fallen 1.85% to $80.70 a barrel, and WTI has tumbled 2.0% lower to $76.40 a barrel.
“Oil is likely to find sellers on any intraday rally today and is in danger of extending losses once Europe and North American markets resume.
“Brent crude has resistance at $83.00 which looks unlikely to be retested over the next few sessions. Brent could potentially retest the $78.00 area this afternoon, although I expect the 100-day moving average at $77.00 to hold for now.
“WTI’s triple top at $81.30 is now formidable resistance and a fall to $75.00 a barrel area cannot be ruled out. The 100-DMA is critical support, today at $74.40”, OANDA analysts said in a report made available to MarketForces Africa.
Depending on how this virus-led sell-off evolves, and how concerned the WHO is of it, the calculations surrounding the OPEC+ meeting next week could change.
OPEC+ has stated repeatedly that one area of caution was the resurgence of Covid-19 eroding oil demand as the grouping raises production.
“One takeout for sure is that OPEC+ will not increase production above its previously agreed 400,000 bpd target next week, despite the noise from its major customers.
“At this stage, I do not believe they will look to reign in production unless the market situation really deteriorates next week, and oil prices experience a much deeper slump”, OANDA stated.
In the UK, the Department of Health plans to move South Africa, Botswana, Eswatini, Lesotho, Namibia and Zimbabwe onto its “red list” as of midday Friday.
“A temporary flight ban will be in place and all travellers who have been in these countries must quarantine and take tests,” the department said in a statement.
Apart from the ongoing increase in new coronavirus cases that recently prompted Austria to impose a national lockdown, a sizeable oversupply in early 2022 is likely due in part to the upcoming release of US oil reserves and those of major crude oil importers such as India and China, according to a research note from Commerzbank.
The US Department of Energy has invited companies interested in participating in the first auction of 32 million barrels to submit bids on Dec. 6, Commerzbank Commodity Analyst Carsten Fritsch said in the note to clients.
The contracts will be awarded no later than Dec. 14 and delivered between January and April of next year. Early deliveries are also possible by the end of December. The sale of the remaining 18 million barrels is expected to be announced after Dec. 17.
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