DTN Oil

Oil Futures Down Tuesday Morning

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange resumed losses Tuesday, sending the U.S. and international benchmarks down as much as 3% in early morning trade as investors re-assess risks of the highly-mutated strain of the coronavirus, omicron, after Moderna's CEO said COVID-19 vaccines were unlikely to be as affective against the new variant as they were against delta, raising concerns over deeper travel controls and delayed demand recovery.

When asked about the efficacy of COVID-19 vaccines against the new variant, Moderna CEO Stephane Bancel said in an interview published this morning, "I think it's going to be a material drop. We just don't know how much yet. Every scientist I spoke to told me it's not going to be good." He also added that it might take months to develop a new vaccine, scale up production and redistribute it.

The comments sent global markets back in retreat, with Dow Jones Industrial futures falling as much as 350 points, Treasury bond yields tumbling and U.S. oil benchmarks sliding below $67 per barrel (bbl), down more than $3 bbl in overnight trade. Early assessment of omicron symptoms showed a rather mild illness that could be easily treated at home, but a lot is still unknown about the virus. There is little or no data available whether any omicron patients have been vaccinated or previously infected with another variant of COVID-19. Scientists also don't know how deadly omicron may be among more vulnerable populations. Dutch health authorities announced Tuesday morning that the omicron variant was detected in the country well before flights from South Africa were grounded this weekend, raising the alarm that omicron might have circulated around the world earlier than initially thought.

The U.S., UK and several other nations have imposed travel bans on South Africa and neighboring countries associated with the latest COVID variant, dealing a further blow to air travel at the time when fears of winter resurgence in Northern Hemisphere were already rising. Japan on Monday (11/29) followed Israel in shutting its borders completely to foreigners for at least a month, just weeks after it eased entry rules to the country. President Joe Biden, however, ruled out any return to the lockdowns for the U.S.

Against this backdrop, OPEC+ ministers postponed their monthly meeting until Thursday (12/2) to assess the impact of tougher travel restrictions on global demand growth. Renewed COVID controls could alter the group's output, which was jointly expected to bring back next month 400,000 barrels per day (bpd) of their record 9.7 million bpd cuts introduced at the beginning of the pandemic. OPEC+ still has about 3.8 million bpd of these cuts in place and some analysts suggest that should the coalition choose to support prices against the threat of the emerging variant, it might forgo planned increases until February, buying more time for the market to recover. Ahead of the ministerial meeting, Russia and Iraq came out in favor of sticking with the group's monthly production increases, however, the stance of more hawkish members, such as Saudi Arabia, remains unclear. Russia's deputy prime minister Alexander Novak said Monday that "hasty decisions" are not necessary, adding that market reaction to the omicron variant were "extremely emotional" and short-lived, as there is no scientific data to back up rising fears. Analysts at Morgan Stanley said in a note this week, "With uncertainty over omicron, we expect that OPEC will shelve its target to increase output in January and keep its quota flat."

S&P Global Platts Analytics forecasts that global oil demand will contract by a sharp 1.6 million bpd from the fourth quarter of 2021 to the first quarter of 2022 due to seasonal factors, the impact of higher prices and outbreaks of COVID-19 infections in some countries.

At last glance, NYMEX West Texas Intermediate futures for January delivery slumped $2.82 bbl to $67.29 bbl and International benchmark ICE January Brent declined $2.66 to $70.92 bbl ahead of expiration Tuesday afternoon. The February Brent contact narrowed its discount to $0.29 bbl.

NYMEX RBOB December futures retreated 5.96 cents to $2.0175 gallon and front-month NYMEX ULSD fell 4.74 cents to $2.1047 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges