Oil Plummets On Renewed Covid Fears, But Goldman Suspects Selloff Is Overdone

by Ship & Bunker News Team
Friday November 19, 2021

While Covid maintains its retreat globally, regional waves are enough to inspire bearish sentiment among crude traders, and that was the case on Friday as Austria imposed another full lockdown and Germany added some restrictions, resulting in daily losses of over 3 percent and the fourth straight weekly loss for the commodity.

West Texas Intermediate for January delivery tumbled 3.2 percent and its expiring December contract lost 3.7 percent; Brent declined 2.9 percent.

Adding to investor jitters was the ongoing concern over the U.S. and China potentially releasing inventory from their strategic petroleum reserves.

John Kilduff, founding partner at Again Capital, summarized Friday's activity by remarking, "It's a potent one-two punch for the petroleum complex, when there is a looming supply burst combined with a hit to demand from the virus."

Ironically, rising infections in some regions are seen by some as beneficial to the oil market: Max Kettner, strategist for HSBC, argued in a note that a new wave could mean that  "signs of overheating demand may disappear, reducing concerns around stagflation and premature central bank tightening."

Also, what concerns traders doesn't necessarily concern fund managers, as proven by a Bank of America Corp. survey this week in which only 5 percent of them expressed concern about its potential impact on markets, after inflation, central bank rate hikes, stalling Chinese growth, and asset bubbles.

As for Friday sell off, Damien Courvalin and Callum Bruce, analysts at Goldman Sachs, suspected it may have been overdone, pointing out in a note that "This magnitude of [inventory] deficit is in fact on its own sufficient to absorb the current perceived headwinds to the oil bull thesis, with lower prices in fact reducing the odds of a strategic release."

Craig Erlam, senior market analyst at Oanda, said, "The market still remains fundamentally in a good position but lockdowns are now an obvious risk to this if other countries follow Austria's lead.

"A move below $80 could deepen the correction, perhaps pulling the price back towards the mid-$70 region."