Oil prices rise on supply disruption jitters as geopolitical tensions grow

Oil prices slip 1% on bets that crude supply growth will exceed demand

By

Melbourne: Oil prices fell for the third consecutive day on Wednesday due to increasing expectations that supply growth will exceed demand growth next year, although the Omicron coronavirus variant will not severely curb liquidity like the earlier COVID-19 variant.

U.S. West Texas Intermediate (WTI) crude futures fell 82 cents, or 1.2%, to $69.91 a barrel at 0413 GMT, after losing 56 cents in the previous session.

Brent crude futures fell 71 cents, or 1%, to $72.99 a barrel, after losing 69 cents on Tuesday.

Both contracts slipped more than $1 earlier in the session while Brent’s prompt monthly spread flipped into contango briefly on Tuesday.

The International Energy Agency (IEA) said on Tuesday that with the emergence of Omicron variants, the surge in COVID-19 cases will weaken global demand for oil, while crude oil production will increase, especially in the United States, where the increase in supply will exceed demand at least until the end of next year .

In contrast, the Organization of the Petroleum Exporting Countries (OPEC) raised its forecast for world oil demand for the first quarter of 2022 on Monday.

“The IEA’s bearish view on the market was in stark contrast to OPEC’s more positive view when it released its monthly outlook earlier this week. The divide suggests volatility is likely to remain high in the short term,” ANZ commodity analysts said in a note.

Energy consultancy FGE said it has a more optimistic outlook than the IEA as the consultancy expects a smaller surplus of 400,000 barrels per day, based on a comparatively lower demand risk from Omicron, against IEA’s forecast of 1.7 million bpd in the first quarter.

Also weighing on the market is a firming U.S. dollar, which makes commodities priced in the greenback more expensive for other countries. Markets are awaiting the outcome of a key U.S. Federal Reserve policy meeting on Wednesday for signs of when the central bank may raise interest rates.

In another bearish indicator, industry data showed that U.S. crude inventories last week did not decline as much as expected.

American Petroleum Institute data showed U.S. crude stocks fell by 815,000 barrels in the week ended Dec. 10, according to market sources, compared with a 2.1 million barrel drop that 10 analysts polled by Reuters had expected.

However, distillate inventories decreased by 1 million barrels, while analysts predicted an increase of 700,000 barrels, and gasoline inventories increased by 426,000 barrels, which was a slower-than-expected increase.

The weekly data from the U.S. Energy Information Administration will be released later on Wednesday.

You may also like