(Adds settlement prices, API outlook)
By Barani Krishnan
Investing.com - Oil prices tumbled for a second day in a row on Tuesday, with the U.S. crude benchmark snapping the key $70 per barrel support before recovering, as a weaker demand outlook by the International Agency sapped the market.
Global oil markets have returned to a surplus and face an even bigger oversupply early next year as the Omicron variant of Covid hits international travel, the International Energy Agency said. The IEA cut its forecast for global oil demand in the first quarter by 600,000 barrels a day.
West Texas Intermediate, the benchmark for U.S. crude, settled down 56 cents, or 0.8%, at $70.73 a barrel, after oscillating between a session peak of $72 and low of $69.53. WTI gained 8.1% last week. Prior to that, it hit a four-month low of $62.48 on Omicron-related fears, after a seven-year high of $85.41 in mid-October.
London-traded Brent, the global benchmark for oil, settled down 69 cents, or 0.9%, at $73.70, after a high of $75.14 and bottom of $72.58. Brent rose 7.7% last week. Prior to that, it fell to a four-month low of $65.80, from a 2014 high of $86.70 in mid-October.
The weakened outlook for oil came on the same day that China confirmed its first Omicron case. Given Beijing’s much-publicized zero-tolerance policy to new Covid outbreaks and the variant’s high transmissibility, this could result in the fresh closures of factories and workplaces in the world’s largest crude importer.
The Asian Development Bank, meanwhile, trimmed on Tuesday its 2022 growth forecasts for the region from Covid-related risks and uncertainty.
The IEA revised down its demand outlook by 100,000 barrels per day for both the remainder of this year and 2022. “The surge in new Covid-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is under way,” the Paris-based agency said.
Some analysts struggled to buy into that.
“To me, the only concept that keeps oil from going higher is lower demand,” said Scott Shelton, broker at ICAP (LON:NXGN) in Durham, North Carolina.
“I just don’t believe the supply story and think that while we may build next year, we probably won’t get back to the 5 year moving average,” Shelton wrote in a note. “The supply just isn’t there! If there was a concern, it's that crude stocks are building with stronger crude runs. I would have thought the crude data would have been better.”
To be sure, the EIA’s version of events contrasted with that of the Organization of the Petroleum Exporting Countries’ report earlier this week that raised its world oil demand forecast for the first quarter of 2022.
And while many countries in Europe have already introduced new mobility restrictions, there are also protests against this. U.K. Prime Minister Boris Johnson faced a revolt in parliament on Tuesday after his warning earlier in the week of a “tidal wave” of Omicron cases to come.
Tuesday’s drop in oil came ahead of a snapshot of a weekly snapshot on U.S. crude, gasoline and distillate stockpiles due from the American Petroleum Institute. The API numbers, released each Tuesday after market settlement at 4:30 PM ET (20:30 GMT), are a precursor to official weekly inventory data due each Wednesday from the EIA, or U.S. Energy Information Administration.
Analysts tracked by Investing.com have forecast that U.S. crude inventories fell by 2.08 million barrels for the week ended Dec. 10, adding to the previous week’s decline of 240,000.
Gasoline inventories likely rose by 1.61 million barrels, on top of the increase of 3.88 million in the previous week, forecasts showed.
Stockpiles of distillates, which include diesel and heating oil, are expected to have grown by 688,000 barrels, after the previous week’s gain of 2.73 million.