(Adds settlement prices, API outlook)

By Barani Krishnan

Investing.com: Oil prices fell for the second consecutive day on Tuesday. The U.S. benchmark broke the $70/barrel support level before rebounding. This was due to a lower demand outlook from the International Agency.

According to the International Energy Agency, global oil markets are now in surplus. They will face an oversupply even more soon next year when the Omicron version of Covid is introduced. The IEA decreased its estimate of global oil demand for the first quarter by 600,000.

After oscillating between sessions highs of $72 or lows of $69.53, OPEC’s benchmark crude oil settled at $70.73, or 0.8%. WTI gained 8.1% this week. It had previously fallen to $62.48 in four months due to Omicron-related concerns. This was after an $85.41 high in mid-October that was seven years ago.

The London-traded Brent, which is the international benchmark for oil, fell 0.9% to $73.70. This follows a peak of $75.14, and a bottom of $72.58. Brent rose 7.7% last Wednesday. Brent fell 7.7% last week to $65.80 after falling from $86.70 mid-October 2014 to a low of $65.80.

China’s first Omicron diagnosis was confirmed on the day of the weakened oil outlook. Given Beijing’s much-publicized zero-tolerance policy to new Covid outbreaks and the variant’s high transmissibility, this could result in the fresh closures of factories and workplaces in the world’s largest crude importer.

Meanwhile, Tuesday’s 2022 forecasts of growth by the Asian Development Bank were lowered due to uncertainty and Covid risks.

The IEA reduced its forecast for oil demand by 100,000 barrels daily, in both 2022 and the remaining of 2018. “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.

Some analysts were unable to believe that.

“​​To  me, the only concept that keeps oil from going higher is lower demand,” said Scott Shelton, broker at ICAP (LON:) in Durham, North Carolina. 

“I just don’t believe the supply story and think that while we may build next year, we probably won’t get back to the 5 year moving average,” Shelton wrote in a note. “The supply just isn’t there! There is one concern: the increase in crude oil stockpiles with more crude runs. I would have thought the crude data would have been better.”

To be sure, the EIA’s version of events contrasted with that of the Organization of the Petroleum Exporting Countries’  report earlier this week that raised its world oil demand forecast for the first quarter of 2022.

Many countries across Europe already have new mobility restrictions. However, many are facing protests. U.K. Prime Minister Boris Johnson faced a revolt in parliament on Tuesday after his warning earlier in the week of a “tidal wave” of Omicron cases to come. 

Tuesday’s drop in oil came ahead of a snapshot of a weekly snapshot on U.S. crude, gasoline and distillate stockpiles due from the American Petroleum Institute. Each Tuesday, the API numbers are released after market settlement at 4:30PM ET (20:30 GMT). These API numbers serve as a prelude to weekly official inventory data from U.S. Energy Information Administration (EIA). 

Analysts tracked by Investing.com have forecast that U.S. fell by 2.08 million barrels for the week ended Dec. 10, adding to the previous week’s decline of 240,000.  

Forecasts indicated that inventories could have risen by 1.61 Million barrels on top of an increase of 3.88million in the week before.

Stockpiles of , which include diesel and , are expected to have grown by 688,000 barrels, after the previous week’s gain of 2.73 million.