Oil prices have fallen so hard traders assume planes won’t fly for 3 months: Goldman Sachs

Oil prices have fallen far too quickly due to concerns over Omicron variants, said Damien Courvalin, Goldman Sachs oil strategist.

In fact, the price correction is bordering on comical, according to Courvalin’s calculations.

“The lack of discretionary buying activity in the face of an uncertain new variant of COVID has therefore left prices plummeting and prices in dire demand prospects. We estimate, based on our pricing model, that the market has now integrated a mammoth c 0.7 mb / d [millions of barrels per day] negative demand struck over the next three months, with no compensatory response from OPEC +, ”Courvalin said in a new research note on Wednesday.

Courvalin added: “To put that in context, this would represent one of those extreme outcomes: (1) not a single plane flying around the world for three months, or (2) half as intense as the 2Q20 global lockdown , or (3) a world even worse off than before vaccinations: the combination of global demand for jets falling to last winter’s level (-1 mb / d), twice as much for demand of the EU than the Alpha variant last winter (-2 mb / d) and twice the impact on Chinese demand than the Delta variant this summer (-1 mb / d). market price in a less deep but longer demand impact: an impact of around 4 Mb / d over 3 months, of which around 3 Mb / d, a permanent impact offset by a higher spare capacity of OPEC +. “

WTI crude oil prices have fallen 12% since Nov. 24, fearing the new variant could dampen global demand. Like Yahoo Finance Jared blikre Note, oil prices are now down about 23% from their recent high.

Shares of oil majors Exxon and BP have lost 7.2% and 9.8%, respectively, in the past five sessions, according to data from Yahoo Finance Plus.

The oil selloff comes amid a sharp pullback in the broader market last week, which continued on Tuesday.

The Dow Jones Industrial Average plunged 652 points in Tuesday’s trading, while the Nasdaq Composite and S&P 500 were also deep in the red. All 30 components of Dow were in the red for the session, with the exception of Apple and Merck.

Courvalin thinks the sharp drop in oil prices seems exaggerated.

“We see the fall in prices as excessive but understandable in the context of low liquidity and risk appetite at the end of the year. Given the great uncertainties at the moment, we await further news on the development of the variant and the additional restrictions imposed before renewing our supply and demand balances and oil price forecasts, although again reiterating our view that the market has far exceeded the likely impact of the latest variant on demand. of oil with the structural revision of prices higher due to the radical change in the reaction function of oil supply that awaits us, ”noted Courvalin.

Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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Felix J. Dixon