Oil prices showed signs of recovery after worries about the economic effect of the spreading Omicron variant of Covid-19 drove crude into a bear market. U.S. crude prices, which fell 0.4% Friday to $66.26 a barrel, finished the week above Thursday lows. Brent crude, the global benchmark, rose 0.3% to $69.88 Friday.
Concerns about demand being disrupted by further travel restrictions and lockdowns have dragged down crude roughly 20% from its 2021 highs. Energy stocks Exxon Mobil Corp. and Marathon Petroleum Corp. fell around 6% last month, while the S&P 500’s energy sector declined 5.8%.
The move marked a pause in a slide that began in late November with the emergence of the Omicron variant. Brent and U.S. crude ended last month with their largest percentage declines since March 2020, falling more than 15%. The decline could ease pressure on consumers and businesses hit hard by rising energy prices, while dealing a blow to energy producers.
The Organization of the Petroleum Exporting Countries and allied producers led by Russia, a group known as OPEC+, said Thursday that they would proceed with planned production increases, adding 400,000 barrels a day in January. Those plans had initially sent prices lower. The group said it would reconsider if market conditions change, easing concerns about oversupply.
Some investors said they had expected OPEC+ to refrain from raising production, citing possible low demand because of the variant. A combination of vaccines and growing expertise on coronavirus mitigation can prevent the economic shutdowns that helped send oil prices crashing during the pandemic’s early days, other investors said.
“We have seen this movie before,” said Pavel Molchanov, an equity research analyst who covers the energy sector at Raymond James. “Because of the pattern, we know that the impact will not be game-changing for demand.”
The market would find it hard to absorb new production from OPEC+ and the recent release of strategic petroleum reserves from countries including the U.S., Commerzbank said in a note. But prices could suffer if producers increase output and demand slumps, analysts at the bank said.