Oil rebounded on Monday, recovering from the previous week's rout, as investors assessed the likely impact of the Omicron COVID-19 variant on global energy demand.
Scientists in South Africa last week detected the COVID-19 variant, which has more mutations than previous strains and so may be more transmissible. The World Health Organization called it a variant "of concern," while a number of countries rushed to partially, or fully, close their borders. The news sent global financial markets into freefall on Friday.
But with little evidence yet as to how contagious the Omicron variant might be, and what impact that could have on economic activity, risk assets including crude oil rebounded from last week's lows.
Brent crude futures were last up 4.3% at $75.89 a barrel at around 05:10 a.m. ET, having lost 11.6% on Friday, for their biggest daily drop since April last year. WTI futures rose 4.8% to $71.31 a barrel.
"Given the lack of information on the latest variant, one could probably question the scale of Friday's sell-off and whether it is really justified. The market seems to be coming to that realization in early morning trading today, with a relief rally underway," ING commodities strategist Warren Patterson said.
"Initial reports suggest that symptoms from the Omicron variant are mild, but there are still question marks around how effective current vaccines will be against this latest variant," he added.
The oil price hit its highest in at least seven years recently, as normal levels of activity have gradually resumed and drained global inventories. Even the scale of Friday's sell-off means the cost of a barrel of crude is only around 12% below those highs struck earlier in November.
But as the economic recovery levels off, many analysts, including market watchers at the Organization of the Petroleum Exporting Countries themselves, expect to see an overhang of surplus oil to form in the coming months.
The OPEC+ group was due to meet on Thursday this week to discuss supply policy. But the group postponed the technical meeting to give its members time to evaluate the omicron variant, Reuters reported Monday.
The group has agreed to lift crude output by a joint 400,000 barrels a day each month, but has been under widespread international pressure to step up the pace of its monthly increases to temper the steep rise in global energy prices.
A number of countries — including the United States, the UK and China — last week agreed to release up to around 65-80 million barrels of crude from their respective strategic stockpiles over the coming months. That casts some doubt over what OPEC+ may decide, analysts said.
"With all the current uncertainties in the oil market, we expect the Brent crude oil price to trade in the mid-$70s a barrel through the week, rather then straight back to above the $80-a-barrel price level," SEB chief strategist Bjarne Schieldrop said in a note.
"A decision by OPEC+ to keep production unchanged in January could however be a catalyst to drive the oil price back up above the $80-a-barrel level towards the end of the week," he said.