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Global oil prices have fallen more than 10% in the biggest one-day drop since April last year, after a new strain of Covid-19 raised fears in the market of renewed global travel restrictions that could derail the oil market recovery.
The “most disturbing” new Covid-19 variant saw the price of Brent crude fall $8.77 or 10.7% to $73.45 a barrel Friday afternoon after countries across Europe and Asia immediately imposed travel restrictions introduced to identify the distribution of the B.1.1.529 variant in several African countries.
The US oil price per barrel fell more than $9.12 or 11.6% to $69.27 in one of the sharpest declines since the shutdown of global economies and severe travel restrictions in April 2020, driving oil prices negative for the first time in the U.S .
The new variant has multiple mutations in the spike protein that are feared may evade the immune response induced by existing vaccines.
Following the identification earlier this week, the British government announced on Thursday evening that it would put six South African countries back on England’s red travel list, requiring British travelers returning from those locations from 4 a.m. on Sunday to quarantine. Meanwhile, European Commission President Ursula von der Leyen said the EU also wants to stop air traffic from the region.
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B.1.1.529 threatens to wipe out the oil market surge in recent months as travel and economic activity began to recover from a series of coronavirus lockdowns around the world.
The sudden drop in global oil prices also wiped out the value of the UK’s largest publicly traded oil and gas companies. Oil giant Royal Dutch Shell was down 5.5% by mid-morning Friday, while BP fell 6.7%.
Russ Mold, the investment director at AJ Bell, said: “The drop in oil prices is how the market says it is concerned about a slowdown in economic activity…Markets are clearly speculating that a rapid spread of a more ruthless Covid strain could derail the global economy again.”
The oil price drop follows efforts by some of the world’s largest energy consumers to cool rapidly rising market prices earlier this month, fearing they could spark a surge in inflation and an affordability crisis for households.
A group of countries led by the US, including the UK, agreed to release millions of barrels of oil from their strategic reserves to allay concerns about supply in the market after a surge in demand since the economies started to reopen.
The emergence of a new variant is also likely to cloud negotiations scheduled for December 2 between OPEC’s oil cartel and its allies, where it was planned to discuss whether to increase production by 400,000 barrels per day in January and beyond. should be adjusted.
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