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Crude oil prices retract as omicron variant renews demand concerns

Crude oil futures posted sharp losses in London trading Nov. 30 as the World Health Organization said the new omicron variant poses a high global risk, and a major pharmaceuticals company said currently available COVID-19 vaccines are less effective against it.

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At 1200 GMT Nov. 30, ICE January Brent crude futures was down $2.36/b from the previous settlement at $71.08/b while the NYMEX January WTI futures contract was down $1.91/b at $68.04/b.

Oil prices posted losses once again and almost completely eliminated the partial gains of the previous day, bringing current levels close to the Nov. 26 close. The main trigger for the more bearish sentiment was comments made by Moderna's chief regarding current vaccines' efficacy being limited against the omicron variant, adding that development and production of a more effective version could take months.

All financial and physical markets, particularly in Europe, reacted strongly to the comments, with sharp losses observed across asset classes once again.

The FTSE 100 was observed trading at GBP7,024 during the late morning session, down 1.20% from the previous close, while the Stoxx 600 index was at Eur460.76, down 1.39% day on day.

At the same time, all eyes were on the OPEC+ meeting Dec. 2, which could decide not to increase further crude supply temporarily according to the previously decided levels.

"I believe there is a chance OPEC+ will hold off their decision to raise production, particularly as US is still planning to move ahead with the strategic reserves release," said Ron Smith, senior oil and gas analyst at BCS Global.

The cartel's original meeting was postponed from its initial date to allow more time for further information regarding the recent market developments to be processed. Additionally, a clause in the current agreement exists stipulating a potential pause of the decided supply increase for up to three months, if current market conditions change.

At the same time, the market had already showed concerns over the previous weeks regarding a potential oversupply in 2022, while demand forecasts could have been too bullish, contributing as well to the recent pressure for oil prices.

"This variant could have been just the last straw in a combination of several other variables contributing to the recent price drop," Ron added.