While markets tend to be a bit more optimistic heading into a holiday weekend, it seems like that’s not going to be the case for this week. Stocks were in free fall on Monday as concerns about the new Omicron variant continued to fester in investors’ minds. However, the worst-performing sector, by far, was the oil and gas industry. Monday saw one of the biggest oil price crashes since 2020, with prices plummeting on lockdown fears.
Prices for Brent crude tumbled as much as 5.8% over the course of the day. At the moment, Brent crude is trading for around $71,5 per barrel, while West Texas Intermediate (WTI) futures settled down to $68.3 by the end of Monday.
Analysts are already saying that this is a reflexive reaction to the continued spread of new Omicron cases. In particular, investors are paranoid that further lockdowns might be on the way from governments, something that would spell disaster for oil demand. We’ve already seen Israel and Ireland announce lockdowns, with others likely soon to follow. The U.K. recently said that it wouldn’t rule out lockdowns before Christmas.
Additionally, U.S. officials are once again urging Americans to get vaccinated. Supposedly as much as 72% of new Covid cases in America are due to the Omicron variant.
“This is a knee-jerk reaction to the proliferation of the virus and the fear that lockdowns can rapidly spread,” said Lipow Oil analyst Andrew Lipow on Monday.
At the same time, traders reacted to a few other developments regarding the energy sector. In Libya, oil output has been stalled as militant groups forced shutdowns in the country’s two top oil fields. Much of these tensions have to do with the scheduled Libyan Presidential elections, which are expected to take place later this month. In total, over 300,000 barrels per day of exports have been halted because of this.
Additionally, Russia also plans to lower oil exports for Q1 2022, despite OPEC’s original plans to raise oil output. The country now expects to export two million tons of oil less than it did in the previous quarter. While that’s not a massive difference, it still goes to show that some countries are worried about the potential of oil prices collapsing.
Both of these announcements would normally have a bullish effect on prices, as lowering supply so often does. However, the prospect of worldwide lockdowns and travel restrictions would lead to demand for oil collapsing, as it did last year when prices went into the negative for the first time in history.
Current oil demand is sitting at around 99 million barrels per day, according to the International Energy Agency (IEA). That’s around two million barrels less than its pre-pandemic level. Just a couple of months ago, energy analysts were predicting prices would return to over $100 per barrel. Now that no longer seems the case.
Shares of most oil companies were in the red yesterday following the massive selloff seen in crude. Some of the largest energy companies and oil producers, like Occidental Petroleum (NYSE: OXY) and Diamondback Energy (NASDAQ: FANG), were both down around 3.3%.
