Concerns about the new variant of SARS-CoV-2 made oil prices hit the most in over a year and a half on Friday.
- On Friday, oil prices fell by more than 10%, which meant one of the seven largest one-day sales of this commodity in history
- The sell-off following strong gains in previous months surprised many investors
- In order to lower oil prices, the US previously decided to release oil reserves, but in the current situation, OPEC + may stop increasing its production
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Black Friday, known for numerous sales and promotions in stores, this year was marked by a sale on the financial markets. Oil prices recorded one of the biggest overnight drops in history. On Friday, the brent variant of the raw material fell by almost 12 percent after the advent of the new SARS-CoV-2 strain sparked fears of a return to lockdowns that would hurt global oil demand.
One of the worst oil slumps in history
As Bloomberg calculates, that meant one of the seven largest one-day discounts in the history of quotations crude oil typu brent. Even greater was the scale of the collapse in WTI crude oil prices, whose 13% decline compared to Wednesday’s close was the highest since April 2020. Even despite the sell-off since the beginning of the year, crude oil prices have been up 40%, which is in line with crisis in the markets of other energy resources.
– For some time, the market has lost touch with reality, and recent events remind us that the issues related to the COVID-19 pandemic remain very important – comments John Kilduff from the consulting company Again Capital in an interview with Bloombeg.
Meanwhile, according to Bloomberg the scale of the sell-off was deepened by low liquidity related to the long weekend in the US, breaking of psychologically important price ceilings and securing positions by banks. After Thursday’s Thanksgiving, trading on the New York Stock Exchange was cut short on Friday.
How will OPEC + react to the release of oil reserves and the collapse in raw material prices?
Meanwhile, according to the agency, the turmoil may result in a change in the policy of the OPEC + cartel, which is currently increasing the extraction, whose meeting is planned next week. According to commentators the collapse in oil prices surprised many investors who thought that low oil stocks and the recovery of demand to the 2019 level was a guarantee of maintaining the boom.
– It seemed that nothing bad could happen. Nobody thought that a new variant of the virus could appear that could have a significant impact – commented Rebecca Babin, a trader at CIBC Private Wealth Management, in an interview with Bloomberg.
Increased volatility prevailed in the oil market in the previous days. In order to lower prices, on Tuesday US President Joe Biden announced the release of strategic reserves of the raw materialfollowed by similar steps by China, India, Japan and South Korea. The move, however, was expected and, in direct reaction, oil prices rose that day.
However before that OPEC + announced that in the event of the release of oil reserves, it would refrain from increasing its own supplies. According to Damien Courvalin from the Goldman Sachs OPEC + bank, it will delay the announced increase in production by three months, amounting to 400 thousand. barrels a day. According to UBS Group, the cartel may even resort to production cuts.
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