Oil Price Fundamental Daily Forecast – First Demand Worries, Now Supply Concerns Weighing on Prices

U.S. West Texas Intermediate and international crude oil futures are trading flat on Tuesday with the price action primarily controlled by investor worries about oil demand. Renewed restrictions in Europe and Asia amid a rise in coronavirus cases are one of the reasons for the cautious trade. Others include forecasts calling for near-term demand destruction.

At 13:28 GMT, March WTI crude oil futures are trading $70.16, down $0.64 or -0.90% and March Brent crude oil is at $73.56, down $0.72 or -0.97%.

New Restrictions Point toward Lower Demand in Europe, Asia

Governments around the world, including most recently Britain and Norway, were tightening restrictions to stop the spread of the omicron variant, according to Reuters.

At least one person has died in Britain after contacting the omicron coronavirus variant, the first publicly confirmed death globally from the swiftly spreading strain, Reuters reported.

Reuters also said, in China, major manufacturing province Zhejiang is fighting its first COVID-19 cluster this year, with tens of thousands of citizens in quarantine and virus-hit areas suspending business operations, cutting flights and cancelling events.

ADB Trims Developing Asia’s Growth Forecasts Over Omicron Risks

In another sign that oil demand could be hampered, 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 omicron coronavirus variant.

The Manila-based lender now sees 2021 gross domestic product (GDP) growth of 7.0% for developing Asia, down from 7.1%, and 2022 growth of 5.3%, down from 5.4% in September.

“COVID-19 has receded in developing Asia, but rising infections worldwide and the emergence of a fast-spreading variant suggest that the pandemic will take time to play out,” the ADB said in a supplement to its Asian Development Outlook report.

Omicron Impact Aside, Oil Supply Set to Top Demand – IEA

A surge in COVID-19 cases and the emergence of the Omicron variant will dent global demand for oil, the International Energy Agency (IEA) said on Tuesday, but the broader picture is one of increasing output set to top demand this month and soar next year, Reuters reported.

“The surge in new COVID-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is underway,” the Paris-based IEA said in its monthly oil report.

“New containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous COVID waves,” it said.

Additionally, the United States will account for the single biggest increase in output for a second month running, the IEA said, as drilling picks up there.

Daily Forecast

While most traders have been focusing on lower demand issues, the IEA provided a little surprise by bringing up increasing supply.

This news could limit near-term gains and may force OPEC and its allies to cut monthly output when it meets again in early January.

This won’t be easy, however, because OPEC kept its own outlook for 2021 and 2022 unchanged, saying the impact of the omicron variant on demand will be “mild and short-lived.”

Later today at 21:30 GMT, the American Petroleum Institute (API) will release its weekly inventories report. It is expected to show a small build in crude oil stockpiles.