By Barani Krishnan
Investing.com – Oil prices took a hit for a fourth time in five days, with traders warning that the U.S. crude benchmark could even slip beneath the key $60-per-barrel support, on fears that existing vaccines in the market may not be able to stop the spread of Covid’s newly-discovered Omicron strain.
WTI, or the West Texas Intermediate benchmark for U.S. crude, settled down $3.47, or 5%, at $66.18 per barrel, after an intraday low at $64.44. WTI has lost almost 16% since its last positive close of $78.50 on Nov. 23. It is also down nearly 23% from the seven-year high of $85.41 notched in mid-October.
London-traded Brent crude, the global benchmark for oil, settled down $2.87, or almost 4%, at $70.57. Brent has lost nearly 11% since its last positive close of $82.31 a week ago. It is also down 19% from its seven-year high of $86.70 attained in mid-October.
“There will be some relief bounces from here, but it is all part of greater volatility due to uncertainty,” Samir Madani of tankertrackers.com said in a tweet. “The compass is spinning and we’re drifting in foggy waters for the next couple of weeks. Expect more downside followed by a rocket once Omicron consensus has been reached.”
More importantly, if the present rut isn’t contained, WTI could break below the $60 support based on Tuesday’s chart action alone in the U.S. crude benchmark, some traders warned.
“The fact that we broke below the 200-day SMA (Simple Moving Average) of $65 sets up for a trigger of the $60 support,” said John Kilduff, founding partner at energy hedge fund Again Capital, said.
“Of course, there are several other SMA markers from $64 to $61 that need to be taken out first,” said Kilduff. “But if the market gets no redemption from either Covid-related fears or supportive OPEC+ action in coming days, then sub-$60 could happen.”
OPEC+, the global oil producers’ alliance, is to hold its monthly meeting on Thursday. Most traders expect the alliance — that groups the 13-nation Organization of the Petroleum Countries led by Saudi Arabia with 10 other oil producers steered by Russia — to stop the additional 400,000 barrels per day it has either pumped or pledged to pump since July amid heightened demand for crude before the Omicron discovery.
The WHO, or World Health Organization, said the Omicron variant carried a very high risk of infection surges as more countries closed borders, casting a shadow over economic recovery from the two-year pandemic. But some experts said the variant might prove to be milder than initially feared.
Tuesday’s plunge in oil came after the chief executive of drugmaker Moderna (NASDAQ:MRNA) predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of coronavirus and warned it would take months before pharmaceutical companies could manufacture new variant-specific jabs at scale.
“There is no world, I think, where [the effectiveness] is the same level . . . we had with [the] Delta [variant],” Stéphane Bancel told the Financial Times in an interview. He said the high number of Omicron mutations on the spike protein, which the virus uses to infect human cells, and the rapid spread of the variant in South Africa suggested that the current crop of vaccines may need to be modified next year.
“I think it’s going to be a material drop,” Bancel added. “I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to . . . are like, ‘This is not going to be good’.”