Oil held steady as the International Energy Agency said the global oil market has returned to surplus with the omicron variant curbing international travel.
Brent crude futures were near $74 a barrel, paring earlier gains, as the Paris-based IEA – which advises major economies – said that rebounding supplies from numerous producers are creating a new oversupply, which is likely to swell further early next year.
The worsening outlook is reflecting in oil’s futures curve. The spread between Brent’s two nearest contracts narrowed to 11 cents a barrel on Tuesday compared with over $1 a month earlier, indicating plentiful supply.
“The first quarter of 2022 will clearly be challenging for oil,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “The outlook for global demand is obviously quite a wild card.”
Oil has staged a partial recovery this month after tumbling into a bear market at the end of November due to the emergence of the new Covid-19 variant. Economic risks from the omicron strain and central banks’ efforts to rein in accelerating inflation are likely to see reduced risk appetite from traders, especially with the end of the year approaching.
- Brent for February settlement was rose 0.1 per cent to $74.46 a barrel as of 10:47 a.m. in London
- West Texas Intermediate for January was little changed at $71.29
The IEA expects global oil inventories to swell early next year as supplies remain plentiful with the Organization of Petroleum Exporting Countries and its allies ramping up output, some key consumers planning sales from strategic reserves, and record output in the U.S., Canada and Brazil next year. At the same time, jet fuel demand is faltering amid the new virus strain, it said in a report Tuesday.
OPEC in its own report on Monday boosted estimates for oil consumption in the first quarter by 1.1 million barrels a day, but said it still sees a surplus.
© 2021 Bloomberg L.P.