Only a couple of days ago, there was talk about oil’s inevitable drive to $100 US a barrel. 

Even U.S. President Joe Biden’s plan to use his country’s reserves to ease the pain at the pumps for Americans appeared to some analysts to be little more than a speed bump.

And then…. 

Oil prices ran headlong into pandemic fears yet again, tumbling to levels not seen since September. The North American benchmark oil price, West Texas Intermediate, lost more than $10 US on Friday, or 13 per cent, to trade below $69 US a barrel.

The drop came amid concerns about a new variant of the COVID-19 virus that could dampen both economic growth and fuel demand.

The news demonstrated once again how volatile markets still are.

“The market, I think, forgot about COVID,” said Al Salazar, vice-president of the intelligence division at Enverus, an energy data analytics firm. 

The pandemic, of course, never really went away. But many people could see better days ahead. 

The bullish sentiment for oil was supported by big price gains over the last year, lifted by surging energy demand as economies emerged from pandemic lockdowns and health restrictions.

Friday, however, was a reminder of the trouble the pandemic can still stir up, and how jittery markets remain.

It’s still early days in assessing the potential impact of the variant. Canadian health experts caution against alarm, saying there’s no evidence that existing COVID-19 vaccines wouldn’t continue to be effective.

But investors’ fears that the variant could knock the economic recovery off course were fast to emerge Friday, rattling markets broadly, not just oil and gas.

And the roller-coaster ride may not be over yet. 

The Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet next week. They’re expected to discuss whether to adjust plans to increase output by 400,000 barrels per day in January and beyond. 

It’s part of OPEC’s strategy to gingerly restore deep cuts made last year, when lockdowns and travel restrictions caused demand for fuel and prices to crater.

Now, the cartel will not only be weighing a response to Biden’s strategy to release oil from the U.S. strategic petroleum reserve, but the impact of the variant as well.

“It’s strange days ahead, without question,” Salazar said.

“What does OPEC do now? Do they play I-told-you-so? Do they continue with their ramps in production like they promised, like the 400,000 a day? Do they fade that?”

Rory Johnston, founder of the Commodity Context newsletter, believes that if Friday’s sell-off in oil is maintained, there will be much more appetite among OPEC members for slowing of the returns in production.

“But I would be surprised if the degree of the sell-off [in oil] we’re seeing lasts because it just seems like so much change so quickly,” he said. “And we still don’t have enough information on the new variant.”

Indeed, while the size of oil price drop surprised market watchers Friday morning, it may take a couple of weeks to get a better idea of what it all means. That’s something analyst Jeremy McCrea will be watching for.

He said the “shocking” move in oil prices may also have been the result of profit-taking by market speculators, given how prices had climbed up recently. But it may still give some oil executives pause about whether they should increase their spending next year.

“What we’re really going to see with … such a steep drop in prices in one day is a lot of guys start to say, ‘You know what, maybe we don’t need to increase our spending quite yet. Let’s just continue to pay down debt just given how much volatility we’re still seeing here in the sector,'” McCrea said.

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