By Peter Nurse
Investing.com -- Oil prices fell Tuesday after the International Energy Agency cut its forecast for oil demand in the first quarter, saying the new Omicron coronavirus variant will dent the global recovery.
By 9:15 AM ET (1415 GMT), U.S. crude futures traded 1.5% lower at $70.25 a barrel, while the Brent contract fell 1.4% to $73.32.
U.S. Gasoline RBOB Futures were down 0.8% at $2.0996 a gallon.
Global oil markets have returned to a surplus and face an even bigger oversupply early next year as the Omicron variant hits international travel, the International Energy Agency said, cutting its forecast for global oil demand in the first quarter by 600,000 barrels a day.
“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.
This contrasted with the view of the Organization of the Petroleum Exporting Countries, as OPEC released a report earlier this week in which it raised its world oil demand forecast for the first quarter of 2022.
Many countries in Europe have already introduced new mobility restrictions, with U.K. Prime Minister Boris Johnson warning of a “tidal wave” of Omicron cases to come.
On top of this, China has confirmed its first Omicron case, and given the country’s zero-tolerance policy and the variant’s high transmissibility this could result in the fresh closures of factories and workplaces in the globe’s largest importer of crude.
The Asian Development Bank on Tuesday trimmed its growth forecasts for developing Asia for this year and next to reflect risks and uncertainty brought on by the variant.
Away from the demand situation, supplies are rebounding around the world, from the current OPEC+ ramp-up and sales from strategic reserves, to record output in the U.S., Canada and Brazil next year, the IEA added.
An illustration of the U.S. supply situation is due at 4:30 PM ET, as the American Petroleum Institute is due to release data on U.S. crude stockpiles.
The industry body recorded a draw of 3.1 million barrels last week, a larger drop than expected, and compared with a draw of 747,000 barrels reported by the API for the previous week.
Additionally, U.S. producer prices increased 0.8% on the month in November, an annual gain of 9.6%, the largest rise since November 2010 and followed an 8.8% increase in October.
This supports the view that inflation could remain high for a prolonged period, put pressure on the Federal Reserve, which concludes its two-day policy-setting meeting on Wednesday, to act promptly.
This could result in a firmer dollar, weighing on crude prices as it makes oil more expensive for buyers holding other currencies.