ASX energy shares on watch after Omicron sparks oil price crash

Energy shares looks set to be hit hard by Omicron…

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It could be a tough start to the weeks for energy shares such as Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).

This follows an oil price sell off on Friday night amid fears over the new Omicron variant of COVID-19.

What happened to oil prices?

Traders were selling off oil on Friday night in a panic, leading to prices having their worst day of the year so far.

According to Bloomberg, the WTI crude oil price sank a whopping 13.05% to US$68.15 a barrel and the Brent crude oil price has tumbled 11.55% to US$72.72 a barrel.

Traders are concerned that the new Omicron variant, which was discovered in South Africa, has the potential to put countries back into lockdown and derail the travel market. If this were to happen, it would hit demand for oil very hard, just as supply is about to increase.

John Kilduff, partner at Again Capital, told CNBC: “It appears that the discovery of a Covid-19 variant in southern Africa is spooking markets across the board. Germany is already limiting travel from several nations in the affected region. The last thing that the oil complex needs is another threat to the air travel recovery.”

Increasing supply

Last week the US Government announced plans to release 50 million barrels of oil from the Strategic Petroleum Reserve as a part of a global plan by energy-consuming nations to tame rising fuel prices.

China, India, Japan, South Korea, and the U.K. are also planning to release some of their reserves.

Analysts at Commerzbank commented: “This [sell-off] is attributable to concerns about a sizeable oversupply in early 2022 that is set to be brought about by the upcoming release of strategic oil reserves in the US and other major consumer countries, plus the ongoing steep rise in new coronavirus cases.”

“Furthermore, an even more transmissible variant of the virus has been discovered in South Africa, prompting a noticeable increase in risk aversion on the financial markets today,” it added.

All in all, Omicron looks set to make this another volatile period for energy shares.

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