Still, demand impact remains largely a theory as the market continues to recover: File Image/Pixabay
With trading behaviour on Monday described as "knee-jerk," growing cases of the omicron variant in Europe and the U.S. caused oil prices to nosedive by almost 4 percent, as traders failed to be reassured by reports of the waning severity of the strain and also Moderna Inc. on Monday stating that a booster dose of its Covid vaccine will protect against it.
Brent settled down $2, or 2.7 percent, at $71.52 per barrel, while West Texas Intermediate settled down $2.63, or 3.7 percent, at $68.23 per barrel.
Andrew Lipow, president of Lipow Oil Associates, said of Monday's crude trading, "This is a knee-jerk reaction to the proliferation of the virus and the fear that lockdowns can rapidly spread."
Andrew Lipow, president, Lipow Oil Associates
This is a knee-jerk reaction to the proliferation of the virus
The sell off was said to be a reaction to the Netherlands going into lockdown on Sunday and the possible reintroduction in Europe of further restrictions putting a damper on the busy Christmas season.
Still, as was the case with the rise of the Delta variant, omicron's effect on demand overall seems negligible, and in the U.S. energy companies added oil and natural gas rigs for a second week in a row for a total of 579, the highest number since April 2020 according to Baker Hughes.
Plus, the International Energy Agency stated that while the surge in Covid cases may temporarily slow global oil demand recovery, the impact of omicron would likely be more muted than previous waves and wouldn't derail the recovery.
In fact, in some quarters the fear persists that there soon won't be enough oil to go around: Julian Lee, commodities analyst at Bloomberg, wrote in support of Saudi Arabia's recent claim that worldwide oil production could fall by 30 million barrels per day (bpd) by the end of the decade because there is not enough being spent on the exploration for and development of new resources.
He stated, "A 30-million bpd drop in oil supply might seem like a victory to the most short-sighted of environmental campaigners, but without an accompanying fall in oil demand, it will come with a price tag none of us can afford: oil prices at levels never before imagined."
In other crude news on Monday, state-owned National Oil Corp. said Libya's production had fallen by more than 300,000 bpd due to members of the Petroleum Facilities Guard closing a valve on a pipeline taking crude from Sharara to Zawiya and on a pipeline running to Mellitah.
The shutdowns came in advance of a presidential election scheduled for later this week that's meant to end more than a decade of conflict and civil war.