Oil prices have come down too fast on Omicron variant concerns, according to Goldman Sachs oil strategist Damien Courvalin.
According to Courvalin's calculations, the price correction is borderline comical.
The lack of discretionary buying activity in the face of an uncertain new COVID variant has left prices in freefall and pricing in a dire demand outlook. The market has now priced in a mammoth c. 7 mb d millions of barrels per day of negative demand over the next three months, with no offsetting OPEC response, according to a new research note on Wednesday by Courvalin.
WTI crude oil prices have plunged 12% since Nov. 24 because of fears that the new variant will stunt global demand. Oil prices are down 23% from their previous high, according to Yahoo Finance's Jared Blikre.
The shares of oil majors Exxon andBP have dropped 7.2% and 9.8% in the last five sessions, according to Yahoo Finance Plus data.
The sell-off in oil came amid a broader market pullback this past week, which continued on Tuesday.
The Dow Jones Industrial Average plunged 652 points in Tuesday trading, while the S&P 500 and the Nasdaq Composite were also deeply in the red. All 30 Dow components were in the red for the session, except Apple and Merck.
Courvalin believes that the steep pullback in oil prices is overdone.
We view the move lower in prices as excessive but understandable in the context of low year-end liquidity and risk appetite. We await further news on the variant's development and additional restrictions imposed before refreshing our supply and demand balances and oil price forecasts, but again, we believe that the market has far overshot the impact of the latest variant on oil demand due to the dramatic change in the oil supply reaction function still ahead of us, Courvalin noted.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. You can follow Sozzi on Twitter and LinkedIn.