Oil prices tumbled to below US$70/b on Monday, driving a sharp -3.6% decline for the ASX 200 energy sector.
Omicron continues to capture oil markets, as the new variant poses a major threat to social mobility during the all important Christmas period.
Nations across Europe have reimposed tougher measures as cases surge to all-time highs. The Netherlands, which dropped almost all covid restrictions in June, is now imposing a nationwide lockdown.
Other countries including France, Cyprus, Austria and Ireland have also tightened restrictions.
Over in the US, chief White House medical advisor Dr Anthony Fauci urged Americans who are travelling during the holidays to get a booster shot, wear masks and avoid crowded public spaces.
“It is just, you know, raging through the world,” said Fauci on NBC’s “Meet the Press.”
“Crude prices were lower on both a strong dollar and as omicron concerns grow as the current virus surge will likely lead to some Americans to cancel holiday travel plans,” said OANDA senior market analyst Ed Moya.
OPEC flagged slightly lower oil demand in the fourth quarter of 2021, taking into account covid containment measures in Europe and the potential impact of omicron.
That said, “the impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges”, OPEC said in its December monthly oil market report, adding that “this is in addition to a steady economic outlook in both advanced and emerging economies.”
The petroleum organisation kept its 2022 forecast unchanged at 4.2m barrels per day.
Goldman Sachs is also looking past near-term omicron concerns, saying that crude oil prices could hit US$100/b in 2023 as demand growth outpaces supply.
The drivers for oil prices include underinvestment in supply as lenders focus on ESG-aligned industries and projects, inflation for drillers and a shortfall in supply.
"Oil prices have to be higher to overcome the higher cost of capital to fund projects", said Goldman's head of energy research Damien Courvalin, as quoted by Bloomberg.
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