Crude oil futures plunged by more than 10% early on Nov. 26 on fears of a rapidly spreading, new COVID-19 variant announced the day prior by the health minister of South Africa, representing the biggest single-day drop of the year.
The Nov. 26 loss is the biggest dip since April 2020 and sent front-month NYMEX WTI below $70/b for the first time since September. Some countries already are banning flights from many African nations, although the variant also was detected in a traveler from South Africa to Hong Kong.
As of 1632 GMT, front-month NYMEX January WTI was down by $9.59/b, or 12%, at $68.80/b and ICE January Brent was down $8.70/b, or 11%, at $73.52/b.
NYMEX December RBOB was down 27.28 cents at $2.0469/gal and December ULSD gave up 27.37 cents to $2.1093/gal.
Likewise, the Dow Jones Industrial Average was down nearly 3% by more than 1,000 points.
The new variant, initially dubbed B.1.1.529, has a strikingly high number of mutations, and the focus will be on how much it impacts the vaccinated and recently boosted populations.
"This new variant has really unnerved investors," said Edward Moya, senior market analyst for OANDA. "In the small sample sizes we have, it's really concerning because it could really derail the reopening and trigger some panic selling. Prices could still come down a lot more."
Exasperating the selloff is that there is only one trading day, Nov. 26, following the US Thanksgiving holiday and ahead of the weekend, Moya said, as well as already jittery markets dealing with year-end considerations for meeting annual profit goals.
"You're seeing a lot of abandoning of some longer-term bullish bets," he said.
The decline was seen primarily in the prompt months, causing the crude backwardation to narrow. The NYMEX crude front-month premium to the 12th month contract was trading around $4.02/b midday Nov. 26, down from $11.65/b at the end of October, reflecting a loosening of supplies.
The coordinated Strategic Petroleum Reserve release led by the US may prove ill-timed with this new variant, and the focus will be on any new considerations taken by OPEC+, Moya said. "OPEC's hesitation to increase output has been vindicated by this new variant."
The White House said Nov. 23 that it would release 50 million barrels of crude from the SPR as part of a global effort involving India, Japan, South Korea, China and the UK that would see a total 71 million barrels released to the market in coming months.
OPEC and its allies will hold a series of meetings in the coming days as it weighs whether to respond to an announced coordinated strategic petroleum reserve release by key oil consuming countries, led by the US.
A delegate-level technical advisory committee will meet Nov. 29, followed by the ministerial monitoring committee co-chaired by Saudi Arabia and Russia convening on Nov. 30.
OPEC ministers will then meet Dec. 1, before inviting Russia and nine other partners in the OPEC+ coalition to talks on Dec. 2.
S&P Global Platts Analytics said Nov. 24 that the the recent sluggishness of supply growth in the face of elevated prices has raised fears of market tightness during the medium-term. However, a protracted period of crude prices in the $70-$80/b range eventually would be a catalyst of overall production growth, particularly in non-OPEC nations.
"Of the 4.0 million b/d increase in supply expected between 2023 and 2025, non-OPEC will likely make up more than 60% of the total increase, with the US representing the largest portion of non-OPEC growth, or +1.9 million b/d. For shale specifically, while there are questions on capital discipline, we believe the risks are to the upside during this period, particularly if prices remain in the $70s/b over the shorter-term horizon," Platts Analytics said.