Oil prices dropped by more than a tenth in only one day after health officials revealed the discovery of the latest potentially hazardous coronavirus type in Southern Africa. Brent crude slid from over $80 per barrel to over $72 per barrel in less than 24 hours, days after prices rose in response to the release of 50 million barrels from the US strategic petroleum reserve. With Brent around $72, OPEC’s supply-increase programme is probably set to come to an end.
With vaccination rates skyrocketing over the summer, it’s evident that whether this new variety will genuinely constitute a serious threat to Oil demand remains an open topic. This selloff is playing into OPEC’s fears about demand, which were expressed recently and are likely to be part of plans to halt the monthly addition of 400,000 bpd to total OPEC+ Oil output until it returns to pre-pandemic levels. Regardless, the organisation was never able to add 400,000 bpd since several members struggled to increase production.
OPEC now has more than one compelling motive to reduce supplies. First, the Oil-producing cartel had little possibility of welcoming the US reserve release, which also engaged other significant consumers who happen to be Washington’s allies. In fact, almost immediately after the SPR announcement, reports surfaced that Saudi Arabia and Russia, the extended OPEC+ alliance’s leaders, were considering suspending the output hike strategy.
The Wall Street Journal reported on Wednesday, citing anonymous sources familiar with the situation, that the group’s two major Oil producers were leaning toward pausing output increases, while others, including as the UAE, saw no reason to change course. This viewpoint may have shifted following the price reduction on Friday.