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Crude oil futures fall amid reports of new COVID-19 variant

Crude oil futures plunged in mid-morning trade in Asia Nov. 26 as investors were spooked by reports of a new COVID-19 variant from South Africa that appeared to evade immune responses, sparking a sharp sell-off in the broader financial markets.

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At 10:05 am Singapore time (0205 GMT), the ICE January Brent futures contract was down $1.13/b (1.37%) from the previous close at $81.09/b, while the NYMEX January light sweet crude contract was $1.52/b (1.94%) lower at $76.87/b.

"South Africa made headlines yesterday with reports about a new coronavirus variant, resulting in UK authorities banning flights and instituting quarantine measures for travelers from selected African countries," OCBC Research analysts said in a note.

Oil prices were falling in line with the broader financial markets as investors exited riskier assets following reports of the new virus variant.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.11% as of 0205 GMT, while Japan's Nikkei was down 2.29%.

"At present, there is just a small number of known cases and nothing is known about its transmissibility, a key factor determining whether variants flourish or wither. But the new variant is considered notable enough that it is being urgently investigated in terms of both its transmissibility and vaccine efficacy against it," ANZ analysts Brian Martin and Daniel Hynes said in a note.

The latest development will further cloud hopes of a swift economic recovery as vaccinations around the world pick up pace. Europe is in the midst of battling its fourth, or for some fifth, wave of COVID-19 infections, with Portugal the latest to reimpose fresh restrictions Nov. 25.

Investors were also awaiting the next OPEC+ meeting Dec. 2 to see whether the group will hold off on its monthly output increase in light of the recent surge in COVID-19 infections and strategic petroleum reserve releases by major oil importing nations.

Media reports indicated that OPEC's advisory body, the Economic Commission Board, expects the SPR releases to swell a coming surplus set to kick in in oil markets from the first quarter next year. Analysts said this could push the OPEC+ group to suspend its output hike.

"We expect the OPEC+ alliance will suspend its scheduled 400,000 b/d increase for January at its meeting next week. This would buffer the market from headwinds to demand, such as renewed travel restrictions as a new wave of the pandemic hits Europe and the US. This would see the market in deficit in Q1," ANZ's Martin and Hynes said.