Americas News
Oil Plunges As Market Surplus Adds to Omicron Woes
The International Energy Agency reporting that the global oil market has returned to surplus was deemed to be enough to compel crude traders to panic about demand and send prices plummeting yet again on Tuesday.
West Texas Intermediate slipped $1.30 to $69.96 per barrel at 12:30 p.m. EST in New York, while Brent dropped fell $1.42 to $73.00 per barrel.
Bearish sentiment was stoked by politicians tightening restrictions in response to the spread of the omicron variant, despite several credible market voices this week expressing the latest variant will have a muted impact on oil demand.
Among the latest tightened measures, Italy now requires travellers from other European Union countries to provide a negative COVID-19 test, Scotland is urging no more than three households to mix, and New York issued a state-wide indoor mask mandate for businesses without vaccine requirements.
The IEA said rebounding output from the Organization of the Petroleum Exporting Countries (OPEC), the U.S., Canada, and Brazil has created an oversupply that's likely to swell further next year.
Highlighting the ever present problem of getting a clear picture of just how COVID is impacting the market, IEA also claimed that jet fuel demand is faltering due to omicron, contradicting comments by JP Morgan in the previous session who argued that jet travel "has been rising steadily across every single region."
Some of the IEA prognostications were supported by data that Brent crude for February settlement flipped to trade at a discount to the March contract for the first time since March, indicating that oversupply could occur through the first quarter of 2022.
Greg Sharenow, a portfolio manager at Pacific Investment Management Co., remarked, "Does it negatively impact sentiment? It does.
"I think it's a moment for everyone to take a breather: whether this will be transient or not depends on your view on what OPEC decides to do and what they can do."
But the bearish outlook is challenged by OPEC, which sees a global consumption of 99.13 million barrels per day (bpd) of crude in the first quarter of 2022, an increase of 1.1 million bpd from its last forecast a month ago.
The cartel's latest report echoes the sentiment of those experts who project omicron's impact to be "mild and short-lived," and that countries are better equipped to manage the pandemic.
Louise Dickson, senior oil markets analyst at Rystad Energy, wrote on Tuesday, "Very few trading days see the oil market so polarized as today.
"While there is a clear bearish monster at the gates, the omicron variant, bullish traders are placing bets that OPEC+ changes course and lowers crude output, which if realized will add to the support coming from Pfizer's efficacy confidence in its antiviral pill against the pandemic's latest strain."
