By Steve Goldstein
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 /zigman2/quotes/211629951/delayed CL.1 +0.79% 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 /zigman2/quotes/210189548/delayed NG00 +9.50% , by contrast, fell 4%.