More strange days ahead for oil industry following Friday price plunge - Action News
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More strange days ahead for oil industry following Friday price plunge

Oil prices ran headlong intopandemic fears yet again on Friday, tumbling to levels not seen since September.

New COVID variant raises concerns ahead of OPEC+ meeting next week

An Alberta pumpjack works at a well head on an oil and gas installation in this file photo. Oil prices took a sudden drop Friday amid concerns about a new variant of the coronavirus. (Jeff McIntosh/The Canadian Press)

Only a couple of days ago, there wastalkabout oil's inevitable drive to $100 US a barrel.

Even U.S. President Joe Biden's planto usehis country's reserves to ease the pain at the pumps for Americans appeared to some analyststo be little more than a speed bump.

And then....

Oil prices ran headlong intopandemic fears yet again, tumbling to levels not seen since September. The North American benchmarkoil price, West Texas Intermediate, lost more than $10US on Friday, or 13per cent, to tradebelow $69USa barrel.

The drop came amid concerns about a new variantof the COVID-19 virus that could dampen both economic growth and fuel demand.

The newsdemonstrated once again how volatile markets still are.

"The market, I think, forgot about COVID," said Al Salazar, vice-president of the intelligence division at Enverus, an energy data analytics firm.

The pandemic, of course, never really went away.But many people could see better days ahead.

The bullish sentiment for oil wassupported by big price gains over the last year, liftedby surging energy demand as economies emerged from pandemiclockdowns and health restrictions.

The sudden drop in oil prices on Friday may give some oil executives pause about whether they should increase their spending next year. (Reuters)

Friday, however, was a reminder of the trouble the pandemic can still stir up, and how jittery markets remain.

It's still early days in assessing the potential impact of the variant.Canadian health experts cautionagainst alarm,saying there's no evidence that existing COVID-19 vaccines wouldn't continue to be effective.

But investors' fears that the variant could knock the economic recovery off coursewere fast to emerge Friday, rattling markets broadly, not just oil and gas.

And the roller-coaster ride may not be over yet.

The Organization of the PetroleumExporting Countries(OPEC) and its allies will meet next week. They'reexpected to discuss whether toadjustplansto increase output by 400,000 barrels per day in January and beyond.

It'spart of OPEC's strategy togingerly restoredeep cuts made last year, when lockdowns and travel restrictions caused demand for fuel and prices to crater.

Now, the cartel will not only beweighing a response to Biden's strategy to release oil from the U.S.strategic petroleum reserve,but the impact of the variant as well.

"It's strange days ahead, without question," Salazar said.

"What does OPEC do now? Do they playI-told-you-so? Do they continue with their ramps in production like they promised, like the 400,000 a day? Do they fade that?"

Members of the OPEC oil cartel and its allies will meet next week to discuss how it will proceed with its plan to gradually restore oil production to pre-pandemic levels. (Ramzi Boudina/Reuters)

Rory Johnston, founder of the Commodity Context newsletter, believes that if Friday'ssell-off in oil is maintained, there will be much moreappetite among OPEC members for slowing of the returns in production.

"But I would be surprised if the degree of the sell-off [in oil] we're seeing lasts because it just seems like so much change so quickly," he said. "And we still don't have enough information on the new variant."

Indeed, while the size of oil price drop surprised market watchers Friday morning, it may take a couple of weeks to get a better idea of what it all means. That's something analyst Jeremy McCrea will be watching for.

He said the "shocking" movein oil prices may also have been the result of profit-taking by market speculators, given how prices had climbed up recently. But it may still give some oil executives pause about whether they should increasetheir spending next year.

"What we're really going to see with ...such a steep drop in prices in one day is a lot of guys start to say, 'You know what, maybe we don't need to increase our spending quite yet. Let's just continue to pay down debt just given how much volatility we're still seeing here in the sector,'" McCrea said.

With files from Reuters and The Associated Press