By Adedapo Adesanya
Predictions from the International Energy Agency (IEA) that the Omicron variant would slow the recovery in global oil demand caused the oil market to fall by more than one percent on Tuesday.
Brent crude fell 75 cents or 1.02% to $ 72.95 a barrel, while West Texas Intermediate (WTI) crude fell 86 cents or 1.22% to s’ trade at $ 69.87 per barrel.
The recent spike in COVID cases is expected to slow the recovery in demand in the coming weeks, with jet fuel demand being the hardest hit, the IEA said in its latest oil market report for December.
Due to new restrictions on international travel, the IEA has slightly revised downward – by 100,000 barrels per day – its forecast for growth in demand for this year and next.
In 2021, the IEA expects demand for oil to increase by 5.4 million barrels per day from 2020, and an additional 3.3 million barrels per day in 2022, reaching levels of before COVID of 99.5 million barrels per day.
Despite the downward revision, the IEA does not expect a massive drop in demand of the magnitude the oil market appears to have predicted in late November when the first reports of the new variant emerged.
âThe rise in the number of new COVID-19 cases is expected to temporarily slow, but not disrupt, the ongoing recovery in oil demand,â the IEA said in its report yesterday.
âThe new containment measures put in place to stop the spread of the virus will likely have a more moderate impact on the economy compared to previous waves of Covid, especially due to widespread vaccination campaigns. As a result, we expect the demand for road transport fuels and petrochemical raw materials to continue to show healthy growth, âthe agency added.
The IEA also said global oil production is expected to exceed demand as early as this month, driven by growth in the United States and countries of the Organization of the Petroleum Exporting and Allied Countries (OPEC +).
âA much needed relief for tight markets is on its way, with global oil supply expected to exceed demand from this month,â the IEA noted.
The Paris-based agency said that if (OPEC +) continued to scale back its cuts, the first quarter of 2022 would see a surplus of 1.7 million barrels per day, and the excess supply could reach 2 million barrels per day at second quarter 2022..
“If that were to happen, 2022 could indeed become more comfortable,” the IEA said.
OPEC said in its monthly report on Monday that the impact of the Omicron COVID variant on global oil demand would be slight and short-lived, and left its demand growth forecast for 2021 and 2022 unchanged.
The US dollar also stayed near week-long highs on Tuesday, supported by data on producer prices.
Analysts noted that as the US Federal Reserve is more inclined to raise interest rates, this strengthens the greenback and forces oil prices to weaken.