Oil prices fell this Friday below $80 a barrel as surging Covid-19 in Europe threatened economic recovery. Investors are also weighing a potential release of oil from reserved by major economies like the US and China to cool down prices.
Firstly, Brent futures for January fell $2,24 or 2,8, to $79 per barrel by 11:00 am; while the US mix, the West Texas Intermediate for December, fell $2.54, or 3.2%, to $76.47 on its last day as the front-month. For January, WTI was down about $2.15, or 2.8%, to $76.24, according to Reuters.
Moreover, Brent was on track for its lowest close since Sept. 30; while WTI was for its lowest close since Oct. 1. In fact, both benchmarks were also headed for a fourth straight weekly decline for the first time since March 2020.
In addition, this week, Austria became the first country in western Europe to mandate a new full lockdown, as coronavirus cases are rapidly increasing. Also, Germany, Europe’s largest economy, warned that it might also move towards a full lockdown.
About the matter, Craig Erlam, market analyst at OANDA, said in a note quoted by Reuters. “The oil market still remains fundamentally in a good position, but lockdowns are now an obvious risk… if other countries follow Austria’s lead.”
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Oil prices could still face volatility
Furthermore, the oil prices plunge comes right after Brent had surged almost 60% this year, as economies bounced back from the pandemic. Even the Organization of Petroleum Exporting Countries agreed on a gradual output increase. However, since the agreement, OPEC has trimmed its demand expectations twice.
However, governments from the biggest economies, China and the US included, considered releasing oil from strategic petroleum reserves to cool down prices. The US, specifically, had asked OPEC to increase output.
As a result of the speculation about the US releasing stock oil, prices dived about $4 a barrel in recent weeks. In addition, Goldman Sachs oil analysts said in a note that supplies of up to 100 million barrels are already priced in.
Nevertheless, experts agree that the measure will only provide a “short-term fix to a structural deficit.” Finally, OPEC will stick to its policy of gradual output increases, even if prices surge. It says it expects supply to outpace demand in the first months of 2022.