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Oil futures were lower Tuesday after the International Energy Agency said the omicron variant of the coronavirus that causes COVID-19 would slow a recovery in demand for crude.
“The case for oversupply in the next quarter continues to build strength,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily note. “The IEA announced oversupply conditions were already being recorded in the current market, mainly as a result of the omicron variant helping to reduce international travel.”
The Paris-based IEA, in its monthly report, cut its 2022 supply forecast from non-OPEC producers by 100,000 barrels a day and reduced its demand forecast by the same amount, saying it expects the surge in coronavirus cases to stymie the recovery in global demand.
Read: IEA cuts 2022 oil demand outlook citing omicron hit on global growth
“While most markets have largely recovered from the initially steep losses that followed omicron’s discovery, air travel remains especially sensitive, and new COVID-19 variants remain a key risk heading into the new year,” said Fraser.
West Texas Intermediate crude for January delivery
CL.1,
CLF22,
fell 76 cents, or 1.1%, to $70.53 a barrel on the New York Mercantile Exchange. February Brent crude
BRN00,
BRNG22,
the global benchmark, lost 88 cents, or 1.2%, to $73.51 a barrel on ICE Futures Europe.
“If risk appetite is given a boost by central banks this week we could see [oil] push on higher but ultimately, the omicron data is going to be key,” said Craig Erlam, analyst at Oanda, in a note. “Politicians are clearly concerned and the rate of transmission is worrying. Further restrictions could weigh but traders will be all too aware that any drop in the price on this could trigger a sudden adjustment from OPEC+.”
Central banks are also in focus, with the Federal Reserve expected to move Wednesday to more quickly wind-down its monthly bond purchases, setting the stage for interest rate increases by next spring.
See: 5 things to watch for when the Federal Reserve announces its policy decision Wednesday
Meanwhile, the Energy Information Administration will report weekly data on U.S. petroleum supplies Wednesday. On average, analysts polled by S&P Global Platts expect the government data to show that domestic crude inventories declined by 1.7 million barrels for the week ended Dec. 10. They also forecast an increase of 200,000 barrels for gasoline, but distillate stockpiles are expected to fall by 400,000 barrels.
Back on Nymex , January gasoline
RBF22,
declined by 0.9% to $2.098 a gallon, while January heating oil
HOF22,
fell 0.8% to $2.215 a gallon.
Natural gas for January delivery
NGF22,
traded at $3.728 per million British thermal units, down 1.7%.
