The discovery of a new variant of the coronaviruses that causes COVID 19 sent crude prices plummeting Friday, giving major oil producing nations a reason to pause planned production increases, while critics from the U.S. and other major energy consumers, analysts said.
Read: WHO warns world leaders against a knee-jerk reaction to the coronavirus variant from South Africa as the U.K. and EU impose travel bans on affected countries.
A regularly scheduled meeting of members of the Organization of the Petroleum Exporting Countries and their allies in the coming week was already in focus after the US released 50 million barrels of crude from its Strategic Petroleum Reserve in a move coordinated with five other countries: China, India, Japan, South Korea and the U.K.
The move came after OPEC rebuffed calls by President Joe Biden and other world leaders to speed up the pace of planned production increases, with the group sticking to a timetable that boosted output in monthly increments of 400,000 barrels a day. News reports said that OPEC members were thinking about pausing production increases in response to the coordinated release, which helped account for oil s rise in the wake of the reserve release.
See: Why oil prices went up despite the U.S. tapping the Strategic Petroleum Reserve.
Some OPEC members would resist a pause out of fear of blowback from the U.S. and others, according to analysts. The global benchmark Brent crude BRN 00, plunging more than 10%, and the U.S. benchmark West Texas Intermediate crude CL 00, crashing more than 11%, could blunt those concerns, analysts said.
Read: World takes action as a new coronaviruses variant emerges in southern Africa.
While no one can predict the future, the timing of this week's release was always questionable ahead of the OPEC meeting next week. Michael Hewson, chief market analyst at CMC Markets, said in a note, "It seems that it seems even more so."
According to an OPEC source, the market's Economic Commission Board, which advises the cartel, said on Thursday that the release of crude from strategic reserves would leave the market oversupplied by 1.1 million barrels a day early next year.
That is moving in the same direction as the U.S. Energy Information Administration's Short-Term Energy Outlook from Nov. 9, which had forecast that growth in output by OPEC U.S. shale producers and other non-OPEC countries would leave the market oversupplied by 500,000 barrels a day early next year, according to Marshall Gittler, head of investment research at BDSwiss Group.
The new COVID 19 variant and the possibility of further travel restrictions and lock downs will only confirm OPEC's doubts about the trajectory of oil prices, he wrote.