Oil prices stabilized on Monday, clawing back some of their losses after a new variant of the coronavirus fueled crude's worst trading session since April 2020. Oil fell 13 percent on Friday (Nov 26) but is still up about 45 percent for the year, ending the day at $69.95 a barrel. Crude's recent volatility marks the latest big swing in energy markets sparked by worries that Covid-19 travel restrictions will weaken the global economy and sap demand for fuel. In the past 20 months, oil has frequently fallen sharply when new variants and travel restrictions emerge, only to later rebound when demand picks up and large producers instill confidence in their supply curtailments. Some analysts expect a similar pattern to play out after scientists detected the new, fast-spreading Omicron variant. While new travel restrictions could dent the recent recovery in fuel demand, some traders now expect the Organization of the Petroleum Exporting Countries and allies to delay projected supply increases.
Brent crude, the global benchmark of oil prices, added 1% to $73.44 a barrel on Monday (Nov 29). Both U.S. crude and Brent are roughly 15 percent below multiyear highs that they hit in October, potentially offering some relief to consumers and businesses who are facing some of the highest costs for fuel and other products in years entering the winter. Worries about high inflation prompted the U.S. and other countries to recently tap strategic reserves to increase crude supply, though many analysts doubt the inventory releases will meaningfully affect prices. Many analysts expect the path of the global demand recovery and the response by producers to continue swinging prices. Investors will be monitoring the latest travel restrictions caused by the Omicron variant and holiday fuel demand in the coming weeks.
4 comments:
This comes back to a general supply and demand lesson. When supply is high and demand is low, price is often low. In 2020 airplanes, cars, and many other primary methods of transportation were not using fuel which means that consumers and companies were not buying fuel. Thus, the demand was really low and supply was either increasing or staying constant. This results in low prices (for the most part... not including other variables). Now, along with other factors, these primary methods of transportation have increased in its usage and thus, the demand has increased. Prices are bound to increase at least to some extent. Of course there are other variables included in the larger than expected increase in price, but it doesn't help that people were getting used to $1.60 gas prices in Ohio and lower prices across the country.
As you mentioned, it is very clear that oil prices have fluctuated significantly since the start of the pandemic. Every new variant threatens to create new travel restrictions and guidelines for people to follow which can potentially impact travel. Until the pandemic truly passes and Covid becomes just another flu, I think we will continue to see a fluctuation in prices as a result of the pandemic. It will also be interesting to see how the economy impacts prices. Combining the two elements can create an interesting situation for oil prices.
Oil prices have been very volatile in the short term that's no secret. I think Oil companies do have a problem with the rise of EV. EV has become increasingly popular, if oil prices become too high that increase in EV may become even greater. As the world becomes more aware of global conservation I believe we will become less and less dependent on nonrenewable resources and move towards renewable resources.
This was a very interesting blog to read. Gas prices have fluctuated the entire stint of the pandemic. I don't see this changing any time soon, but we might see more stability in 2022 from oil companies.
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