The average Brent crude benchmark price fell to USD 71.59/bbl on the 26th November, a decline of 12% compared to the previous day, following a sustained three-month period of rising prices. The decline is attributed to reports of a new, potentially vaccine-resistant COVID-19 variant Omicron.
Up until now, the removal of global restrictions and trade resumptions allowed many firms to resume operations to pre-pandemic levels. This led to a surge in demand for oil across many industries, thus exerting upward pressure on Brent crude prices in the last quarter. However, fears of the new Omicron variant led to several countries including the UK, Italy, and Japan, taking immediate action to close their borders to South Africa, where the variant was first detected, to prevent the spread. Brakes on air travel combined with the uncertainty of the impact of the new variant is driving the price for Brent crude oil downwards.
Moreover, in October 2021, OPEC (the Organization of the Petroleum Exporting Countries) announced its intention to gradually increase the global oil supply by 400,000 barrels a day each month. However, a recent surge of COVID-19 cases in the EU and the US, and news of a Omicron variant means OPEC could potentially suspend this in January 2022, as demand is expected to weaken. Overall, Brent crude prices are likely to decline over the next month, until demand is established with more certainty over the Covid-19 vaccine effectiveness against the Omicron variant. If the situation worsens and more restrictions are introduced, there is a risk that this could hinder global economic recovery.