Money and Markets

Oil heads for biggest monthly loss since March 2020, after Moderna boss voices Omicron vaccine concerns

Business Insider US

Oil wells at near Moorpark, California.
  • Oil prices resumed their fall as investors shunned crude futures over concerns about vaccine effectiveness against Omicron.
  • Moderna's CEO told the FT there was "no world" in which current vaccines would offer the same cover as for Delta.
  • Brent crude is heading for its biggest monthly loss since the onset of the pandemic in March 2020.
  • For more stories visit Business Insider.

Oil prices slid Tuesday, erasing all of the previous day's gains, after comments by Moderna's CEO about existing vaccines' efficiency against Omicron reignited concerns over the potential economic impact of the coronavirus variant.

Energy demand was already expected to slow over the coming months, although this has not generally been reflected in crude futures. Prices are close to their highest in years, as major producers struggled this year to ramp up output to keep pace with a sharp bounce-back in consumption.

Since South African scientists detected the highly mutated variant last week, Omicron cases have spread rapidly, prompting border closures and flight restrictions.  In an FT interview published Tuesday, Moderna boss Stéphane Bancel said he expected a "material drop" in the effectiveness of the existing vaccines — including one manufactured by his own company — in the fight against the spread of Omicron.

"There is no world, I think, where [the effectiveness] is the same level?... we had with [the] Delta [variant]," Bancel told the FT.

Brent crude was down 2.4% at $71.50 a barrel at 03:55 a.m. ET, having lost 14.5% in November, for its biggest one-month drop since March 2020. WTI futures were 2.6% lower at $68.13 a barrel, heading for an 18% fall this month. 

CMC chief markets strategist Michael Hewson noted that Bancel's tone contrasted with that from the likes of Pfizer and BioNTech, which have suggested any new vaccine would be able to modified fairly quickly.

"His rather candid comments have also seen oil prices slide back sharply, as an increasingly jittery market react with concern to the prospects of further restrictions and lower demand," Hewson said.

Pfizer director Scott Gottlieb told CNBC on Monday that three doses of the vaccine should offer a good degree of protection, while German bioetch BioNTech said it had already started working on a new jab to combat Omicron.

Meanwhile, US President Joe Biden said Omicron was "a cause for concern, not a cause for panic." His comments did little to stop the deterioration in the oil market, particularly with the meeting of the OPEC+ group of crude exporters due Thursday. 

OPEC and partners such as Russia have an agreement in place to lift crude output by a joint 400,000 barrels a day each month. But they are under widespread international pressure to step up the increases to temper the steep rise in global energy prices.

Ole Hansen, Saxo Bank's chief commodities strategist, said OPEC+ could even opt to prop up prices with a surprise cut on Thursday. He noted a number of its members cannot ramp up output quickly enough, after years of under-investment, and any slowdown in global economic activity could weigh on demand for crude. "The group may decide to postpone the January production increase or if necessary, temporary cut production into a period that was already expected to see the return of a balanced market," he said.

"The risk of $90 oil has not gone away, but once again, the timing has been postponed with 2022 increasingly looking like a relatively balanced year. The main worry remains 2023 and beyond, when OPEC+ have exhausted their ability to increase production," Hansen added.

JPMorgan echoed this view, with an expectation that the group will freeze production quotas for January, at the very least. 

"We already expected the global oil market to move into surplus through 1H22 and anticipated OPEC+ to sit out 1Q22 entirely. Recent developments have only reinforced our view," a team led by analyst Natasha Kaneva said in a daily note.

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