While the Omicron coronavirus variant does not appear to impede mobility as sharply as previous COVID-19 variants, oil prices fell for the third consecutive day on Wednesday amid rising expectations that supply growth will outpace demand growth next year.
Brent crude futures fell 71 cents, or 1%, at 0413 GMT to $72.99 after losing 69 cents on Tuesday.
West Texas Intermediate (WTI) crude futures fell 82 cents, or 1.2%, to $69.91, after losing 56 cents in the previous session.
Both contracts dropped more than $1 at the start of the session, while Brent’s fast monthly spread briefly turned contango on Tuesday.
The International Energy Agency (IEA) said on Tuesday that the rise in COVID-19 cases with the emergence of the Omicron variant will reduce global oil demand, while at the same time crude oil production will increase with supply, especially in the US.
In response, the Organization of the Petroleum Exporting Countries (OPEC) on Monday raised its forecast for world oil demand for the first quarter of 2022.
The IEA’s bearish trend towards the market is in stark contrast to OPEC’s more positive outlook earlier this week. This indicates that volatility will remain high in the short term.
Also, the stronger US dollar is weighing on the market, making dollar-priced commodities more expensive for other countries. Markets await the outcome of Wednesday’s US Federal Reserve policy meeting for signs of when the central bank might raise interest rates.
In another bearish indicator, industry data showed last week that US crude inventories did not fall as much as expected.
American Petroleum Institute data showed US crude inventories dropped by 815,000 barrels in the week ended December 10, less than the 2.1 million barrels that analyst had expected, according to market sources.
However, distillate inventories fell 1 million barrels compared to analysts’ estimates of a 700,000-bp increase, and gasoline inventories increased by 426,000 barrels, a smaller-than-expected increase.
Weekly data from the US Energy Information Administration will be released later Wednesday.