There is a new variant of coronaviruses that may have an impact on oil. The omicron variant was declared a "variant of concern" by the World Health Organization. The dip is the biggest one-day crash since the beginning of the Pandemic.
The omicron variant has a high number of spike protein mutations, which has created a rush of concern over its transmissibility and ability to evade protections. Governments around the world have taken preventative measures. Several countries, including the U.S., have instituted travel bans for passengers coming from southern African countries where the variant was first detected, and the variant has caused a wave of new restrictions and safety precautions in Europe. The shutting down could cause less demand for oil, which could cause prices to plummet.
A senior vice president of analysis at a Norwegian company told the Houston Chronicle that this is a major bearish factor for oil prices. Lower economic activity and lower oil demand are caused by higher infections.
Oil producers have a special fear of another global lock-up like the one we saw in 2020 and it's a nightmare for everyone. The price of oil went negative in April 2020 because of last year's shutdown. For a brief moment, producers were paid traders to take oil off their hands. Any shutdown caused by omicron could have an effect.
There is still a lot to learn about the omicron variant, including whether it is more infectious than other coronaviruses, causes more severe symptoms, and has the ability to skip vaccine protections. The huge oil drop was speculative. Who would have thought that the market would react irrationally? By Monday, the price of crude oil seemed to have leveled out, as it rose by 4.8%. Analysts say that producers and the market at large are waiting for more news about the variant. The markets were open on Thanksgiving and Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told the Wall Street Journal that Friday's dip in oil prices was nothing but a panic selloff.
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