US Crude Oil Craters 12%, Joins Broader Market Selloff on New Variant Concerns

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Crude oil futures are crashing to finish the holiday-shortened trading week as concerns over a new COVID variant sent the broader financial markets in freefall. From oil to gold to wheat to Bitcoin, no asset is safe in the pandemic-driven selloff on Friday. Will this be a prolonged decline, or is this a one-off and a buying opportunity?

January West Texas Intermediate (WTI) crude futures plummeted $9.47, or 12.08%, to $68.92 per barrel at 15:42 GMT on Friday on the New York Mercantile Exchange. US crude prices are poised for a steep weekly loss of 12%, paring their year-to-date rally to below 43%.

Brent, the international benchmark for oil prices, is also cratering to finish the trading week. February Brent crude futures tumbled $8.75, or 10.81%, to $72.17 a barrel on London’s ICE Futures exchange. Brent prices are down 11% this week, bringing their year-to-date decline to below 40%.

Late on Thursday, the World Health Organization (WHO) announced that it would be holding an emergency meeting to assess the new variant that ostensibly contains many mutations. It was first detected in Botswana, Hong Kong, and South Africa. It remains unclear if it is more deadly or contagious and if it can beat the vaccines.

Countries are already taking precautions by suspending travel to South Africa and other countries.

But some financial analysts say that the market’s decline is not based in reality.

“Traders are putting the fear of this new strain ahead of the reality. While we have to take it seriously more than like oil should find a floor in the $72 area,” said Phil Flynn, analyst at Price Futures Group, in a note.

“The worries are still that U.S. volume today will be light but the markets look to be ahead of the risk even though we are not even close to understanding how bad this new variant might be.”

Should this metastasize into a serious situation, this could reduce demand, leading to the selloff. However, at the same time, this and the release of strategic reserves could prompt the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, to trim their previously agreed production of 400,000 barrels per day (bpd).

This comes after the US Energy Information Administration (EIA) confirmed a supply build of 1.017 million barrels in the week ending November 19. Supplies at the Cushing, Oklahoma storage facility rose 787,000 barrels.

In other energy commodities, January natural gas futures advanced $0.166, or 3.25%, to $5.28 per million British thermal units (btu). January gasoline futures plunged $0.2643, or 11.66%, to $2.0018 per gallon. January heating oil futures erased $0.267, or 11.22%, to $2.1124 a gallon.

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