Japan, Israel and Morocco have each put a ban on international travel in the face of the discovery of the new, perhaps more contagious variant of coronavirus.
But the oil market has priced in a far steeper reduction to air travel. According to strategists at Goldman Sachs, the market has priced in what they say is a mammoth 7 million barrels of oil a day reduction in demand over the next three months, with no offsetting response in production from the OPEC+ oil cartel.
That’s the equivalent, say analysts led by Damien Courvalin, of “not a single plane flying around the world for three months.” It’s also equivalent to a lockdown half as intense as the second quarter of 2020, shortly after the new coronavirus that causes COVID-19 first started affecting countries outside of China.
Not surprisingly, these analysts view the reaction as excessive. Their view is that a new variant, combined with the global release of reserves, represents only a $5 per barrel downside to its $85 forecast for the next few months.
“In fact, there’s still potential for offsetting bullish developments via the lack of progress in Iranian negotiations (where we had expected a supply ramp up beginning in 2Q22). OPEC+ freezing its production hike for one month when it meets on Thursday as well as the current ramp-up in gas-to-oil substitution could in fact offset nearly half of the combined negative hits of this new COVID variant and SPR releases in the base scenario,” they said.
Crude futures
CL.1,
rallied nearly $3 per barrel on Wednesday morning but still were trading below $70, after trading as high as $84.97 earlier in the month.
Natural-gas futures
NG00,
by contrast, fell 4%.
This post was originally published on Market Watch
