© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a Department of Energy visit to the Strategic Petroleum Reserve in Freeport, Texas, United States, June 9, 2016. REUTERS / Richard Carson / File Photo

By Arathy Somasekhar

(Reuters) – Crude oil futures stabilized lower on Wednesday, as an early rally collapsed and sales intensified over fears that the Omicron variant of the coronavirus could reduce demand for oil as the world supply increases.

At the end of the session, oil prices fell into negative territory after U.S. officials said the Omicron variant – believed to be more transmissible than previous strains of coronavirus – had been found in the country.

“When the markets get news about Frankenstein variants, you sell and ask questions later,” said John Kilduff, partner at Again Capital LLC in New York City, said he expects a new bullish momentum returns whenever WTI breaks above $ 70 a barrel. .

WTI futures were down 61 cents, or 0.9%, to $ 65.57 a barrel. During the session, they increased by 4%. The global benchmark was down 36 cents, or 0.5%, to $ 68.87 a barrel.

Benchmark oil futures have been under pressure for weeks over factors ranging from the novel variant of the coronavirus to the US decision to release barrels of oil from emergency reserves in tandem with others. country.

Market speculators who had built long positions this year on tight supply expectations have shifted as fundamentals have shifted. Yet major brokerage firms said the sale had gone too far, too fast.

“The speculative community is running the show here,” said Robert Yawger, director of energy futures at Mizuho.

First-month Brent and WTI contracts in November posted their largest monthly percentage declines since March 2020, with Brent down 16% and WTI down 21%.

The new variant has complicated the decision-making process for the Organization of the Petroleum Exporting Countries and their Allies, known as OPEC +, which are meeting this week to decide whether to continue adding 400,000 bpd. supply to markets.

Some had speculated that OPEC + could suspend these additions in an attempt to slow supply growth, which is now expected to generate a surplus of 3.8 million bpd by March 2022, according to an internal report consulted. by Reuters. OPEC + is expected to make its decision on Thursday.

Several OPEC + ministers have said there is no need to change course. But even if OPEC + agrees to go ahead with its supply increase slated for January, producers might struggle to add as much.

“There is a lot to believe that OPEC + will not increase its oil production further as a first step in an attempt to keep current prices around $ 70 a barrel,” said Stephen Brennock, PVM analyst.

The United States, in tandem with several other countries, in November announced plans to release 50 million barrels of its reserves into the market in an attempt to cool energy prices. Retail gasoline prices barely changed, although unfinished gasoline futures known as RBOB fell sharply.

US Deputy Energy Secretary David Turk has said President Joe Biden’s administration may adjust the timing of his scheduled release from strategic crude oil stocks if global energy prices drop significantly.

Goldman Sachs (NYSE 🙂 analysts called the drop in oil prices “excessive”, saying “the market has far exceeded the likely impact of the latest variant on demand for oil.”

U.S. gasoline inventories rose 4 million barrels last week to 215.4 million barrels, according to government data, far exceeding analysts’ expectations, and with a drop in overall gasoline supplied by refiners, a signal of demand. On a four week basis, gasoline demand remains at pre-pandemic levels.

Crude inventories fell 910,000 barrels during the week, the data showed, compared to expectations of a drop of 1.2 million barrels.