Status: 01.12.2021 3:39 p.m.
Oil prices fell more sharply in November than they have since the outbreak of the corona pandemic. Experts speak of a “schizophrenic market”. Now it depends on OPEC.
If you haven’t had to fill up for a few days or even weeks, you rub your eyes in amazement: While drivers had to pay record prices for diesel and gasoline in mid-November, premium E10 gasoline cost an average of “only” 1.634 euros per liter yesterday, according to the ADAC – after all, 3.7 cents less than a week ago. In the middle of the month, EUR 1.1701 per liter of E10 was paid. The background to the reduced fuel prices is the drastic drop in prices on the oil market.
The prices for both the North Sea Brent and US West Texas Intermediate (WTI) crude oil fell more sharply in November than since March 2020 and not since the outbreak of the corona pandemic. The turnaround on the oil market came as a surprise even to many experts, as WTI had hit a seven-year high in October and Brent climbed to a three-year high.
But within just a few days, all gains since the end of August were wiped out. Brent and WTI are now cheaper than they have been in three months. Last Friday alone, the WTI price plummeted by over 13 percent, making it the largest price slump of the current year. At the same time, it was the fifth consecutive week loss – and thus the longest series of losses since March 2020.
Get out of the risk
The oil prices primarily reflect the risk mood in the global financial markets. Since the appearance of the Omikron variant, investors have fled high-risk assets such as stocks and oil. Experts speak of a “risk off” movement.
That sounds rational and understandable at first, after all, even top scientists are currently unable to assess how great the dangers for companies and the economy that result from the new Corona variant really are.
Panic selling exaggerated?
However, the extent of the movement is no longer quite as rationally comprehensible – says Jeffrey Halley, head market analyst Asia-Pacific at foreign exchange broker Oanda: Oil prices are “perhaps the most schizophrenic market that currently exists”.
Commerzbank analyst Carsten Fritsch expresses it not quite as drastically – even if he comes to a similar conclusion on the matter: “Apparently there is panic that the Omikron variant could have similarly strong effects on oil demand as the outbreak of the pandemic We consider these concerns to be exaggerated. ”
Release of strategic oil reserves and fear of excess supply
On closer inspection, however, it is noticeable that the price rally on the oil market had stalled even before the appearance of the Omikron variant. The “black gold” was last under attack from two sides.
On the one hand, speculation about a higher supply as a result of the release of national oil reserves by large economies has depressed the prices of Brent and WTI for weeks. Last week the Biden administration actually released 50 million barrels (159 liters each) of the US strategic oil reserves. The whole thing is part of a global effort by countries like India, China, Japan, South Korea and Japan to moderate the rapid rise in oil prices and its negative effects on businesses and consumers.
On the other hand, even before Omikron, demand concerns had been making the rounds, as experts say the recovery of the global economy is likely to stall in winter due to the dynamic infection rate, especially in Europe, but also because of the strict zero-covid strategy in China.
In this mixed situation, Omikron acted as a kind of catalyst that further exacerbated fears of an impending drastic excess supply at the beginning of 2022.
What does OPEC + do?
In the short term, it now depends on the OPEC oil cartel and its allies. At its meeting tomorrow, OPEC + actually wanted to confirm an increase in oil production by a further 400,000 barrels per day.
“In view of the latest market developments, this is hardly imaginable,” says Commerzbank raw materials expert Fritsch. OPEC + is therefore unlikely to be any other alternative than suspending the planned production increase for two months.
Oil prices facing further increase?
Should OPEC + vote against expanding oil production, this could help stabilize prices. In any case, according to experts, the recent collapse in oil prices could possibly only be a temporary phenomenon. For example, Christopher Wood, investment strategist at the US investment bank Jefferies, is convinced that, given the great dependence of global energy demand on oil, prices should continue to rise in the medium term.
Last year, 84 percent of global energy demand was met by fossil fuels, Wood said today to the US news broadcaster CNBC. The oil price therefore has what it takes to rise much faster, which in turn should cause a surge in fears of inflation. The only thing that could cause the oil price rally a lasting low now would be new lockdowns in the western world.