Peter Nurse   

Investing.com — The International Energy Agency reduced its estimate for oil demand for the first quarter. It said the Omicron coronavirus variation would reduce global recovery. Oil prices dropped Tuesday. 

Futures were trading 1.5% less at $70.25 per barrel by 9:15 ET (1415 GMT) while contract prices fell 1.4% to $73.32. 

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The International Energy Agency stated that global oil markets are now in surplus, and will face an oversupply even more early next year, as Omicron hits international travel. This reduces its projection for oil demand globally by 600,000.

“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 is in direct contrast with the Organization of the Petroleum Exporting Countries (OPEC) report, released earlier this week. OPEC raised its global oil demand forecasts for the first three quarters 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.

Tuesday’s revision of the Asian Development Bank’s growth projections for Asia developed by the Asian Development Bank was due to take into account uncertainties and risks posed by this variant.

The IEA stated that supply is rebounding worldwide, owing to the current OPEC+ boost-up, sales from strategic reserve, as well as record outputs in Brazil, Canada, USA, and Brazil for next year.

At 4:30 pm ET, an illustration of U.S. supply will be available. This is because the U.S. crude stockspiles data is expected to be released.

Industry body reported a draw last week of 3.1 Million barrels, which was higher than the expected and in comparison to the API’s previous draw of 747,000 barrels.  

U.S. was also up 0.8% for November. This is a cumulative gain of 9.6%. It follows an 8.8% rise in October.

These facts support the belief that inflation may remain high for some time. This puts pressure on the, which ends its policy-setting meeting Wednesday at 2 p.m. to take immediate action.

The result could be a more rigid dollar that can affect crude prices. It will also make oil more costly for those who have other currencies.