Global oil prices plunged in the biggest one-day drop since April last year after a new variant of Covid-19 raised fears in the market of renewed global travel restrictions.
The price of Brent crude dropped by $8.77, or 10.7%, to $73.45 a barrel on Friday afternoon after countries across Europe and Asia brought in immediate travel restrictions to guard against the spread of the Omicron variant.
US oil prices per barrel plunged by more than $9.12, or 11.6%, to $69.27. Both oil markers had their biggest one-day declines since the WTI price briefly went negative in April 2020 at the height of the pandemic.
The oil price slump follows efforts from some of the world’s largest energy consumers to cool the market’s fast-rising prices earlier this month, when a group of countries led by the US, and including the UK, agreed to release millions of barrels of oil from their strategic reserves to help ease supply concerns within the market after a surge in demand since economies began to reopen.
OPEC’s next action on December 2
The emergence of a new variant is also likely to cloud negotiations scheduled for December 2, 2021 between OPEC and its allies, where the plan was to discuss whether to adjust the proposal to increase output by 400,000 barrels a day in January and beyond.
The US on its own had agreed to release 50 million barrels of crude from its Strategic Petroleum Reserve (SPR) over the coming months, a plan that had no effect on prices.
Last year’s lockdowns curtailed global demand by as much as 20%, but the easing of restrictions, supply cuts by OPEC and heavy government stimulus spending has since sparked a recovery in oil prices, which have doubled since coronavirus vaccine breakthroughs were announced last November.
Analysts at OPEC+ have already forecast that the oil market will tip into surplus in the first months of 2022 and the excess could swell by 1.1 million barrels per day (bpd) in January and February if the US and other countries go ahead and inject 66 million barrels of oil into the market through their planned stockpile release.
Saudi’s production had sagged to 9.182 million bpd in 2020, but it has gained significant ground to 9.759 million bpd, remarkably close to the 9.794 million bpd produced in 2019.
According to Bloomberg calculations, Saudi is on track to earn the most money in eight years off the back of pumping oil. rivaling some of the highs seen in the 2011-2014 period when oil prices were above $100 per barrel. It’s easy to see how the $300 billion revenue mark isn’t out of the question for next year.
Saudi is thus not keen on raising output just yet.
According to the Energy Information Administration (EIA), the US produces an average of 11.5 million bpd of crude oil every day, down from a high of 13.1 million bpd last year. It consumes 18.2 million bpd of crude, and exports 2.9 million bpd. It too stands to make money on high oil prices.