Oil prices gave up on gains Tuesday and fell more than 2% along with broader financial markets after a media report cast doubt on the effectiveness of COVID-19 vaccines against the Omicron coronavirus variant.
Both benchmarks dropped more than $1 due to the report in the Financial Times. Brent crude futures were down $1.82, or 2.5%, to $71.62 a barrel at 0605 GMT. West Texas Intermediate (WTI) crude futures fell $1.61, or 2.3%, to $68.34 a barrel.
Oil fallen nearly 12% on Friday, along with other markets, on fears that the heavily mutated Omicron would trigger new lockdowns and negatively impact global growth, lowering oil demand.
The World Health Organization said on Monday that Omicron poses a very high risk for infection spikes, with many countries increasing travel restrictions. However, it is still unclear how severe the new variant is and whether it can resist existing vaccines.
With the demand outlook questionable, expectations are rising that the Organization of the Petroleum Exporting Countries, Russia and its allies will suspend their plans to add 400,000 barrels per day (bpd) in January.
After global strategic reserve announcements and the announcement that dozens of countries are restricting travel to and from South Africa and neighboring countries, there is a possibility that OPEC and its allies may consider a production shutdown or even a slight cut in production.
Still, the possibility of OPEC+ to increase production in January remains, according to some analysts.
Omicron rattles oil markets but impact unclear, kicked oil prices lower late last week and has sapped refining margins, but with crude futures rallying on Monday, the impact could be limited.
The prospect of a resumption of oil exports from Iran is also putting supply pressure on the market, following the optimistic comments by diplomats as talks between world powers and Iran resumed on Monday on the revival of a nuclear deal.
