Oil Heads for the Worst Monthly Loss This Year on Omicron Scare

(Bloomberg) -- Oil headed for the biggest monthly loss since the early days of the coronavirus pandemic as investors weighed risks posed by the new omicron variant, with a top drugmaker saying the world may now need new vaccines.

West Texas Intermediate plunged 3%, failing to hold on to early gains, as global benchmark Brent also tumbled. There is no way current shots will provide the same level of protection against omicron as they do against delta, Moderna Inc. Chief Executive Officer Stephane Bancel told the Financial Times.

Crude’s losses formed part of a broad retreat in risk assets as equities and copper also sank, while gold rose.

Oil has sunk 19% in November, set for the biggest monthly loss since March 2020, when the onset of the pandemic crushed global consumption. Investors are now seeking clues about the challenge posed by omicron, and how producers will respond. The Organization of Petroleum Countries and its allies will decide on Thursday whether to pause a run of monthly supply hikes.

“It’s probably too early to say with some conviction on where the market is headed next, until we have more data on the new variant,†said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. If OPEC+ pauses, “it will provide another reason for oil to find a firmer footing,†he said.

While Brent futures remain backwardated, a bullish pattern marked by nearer-term prices trading above longer-dated ones, gaps along the curve have narrowed. For the February and March contracts, it’s 35 cents a barrel, down from 67 cents a week ago. Meanwhile, the prompt spread has sunk to 21 cents, from $1.13 on Friday, ahead of the expiry of the January contract.

The Biden administration said on Monday that it would proceed with a plan to draw 50 million barrels of oil from strategic reserves despite the recent drop in prices, and warned it could release even more onto the market. The move was made in coordination with other crude-consuming nations, including Japan.

President Joe Biden cautioned Americans against panicking over the new variant and said lockdowns won’t be necessary. He said his administration doesn’t yet believe new vaccine formulations will be needed, but that it is already working with drugmakers including Pfizer on contingency plans.

Oil traders are also tracking talks this week aimed at reviving Iran’s 2015 nuclear deal with world powers. Success at the negotiations in Vienna could lift sanctions on Iran’s economy, leading to a resumption in official oil flows. The exchanges began positively Monday, according to a top European diplomat.

Macro-economic data from Asia pointed to improvements in leading economies, a positive signal for energy demand. In China, the manufacturing purchasing managers index returned to expansion, while factory output in Japan edged up.

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