Sonali Paul

MELBOURNE, (Reuters) – Oil prices dropped on Wednesday due to growing concerns that supply growth would outpace demand next year. However, the Omicron coronavirus strain isn’t seen as reducing mobility as much as COVID-19 versions.

U.S. West Texas Intermediate’s crude oil futures declined 52 cents (or 0.7%) to $70.21/barrel at 0215 GMT. After losing 56 cents the previous session, they fell 56 cents.

After losing 69cs on Tuesday, futures dropped 43 cents (or 0.6%) to $73.27/barrel.

According to the International Energy Agency (IEA), a rise in COVID-19 instances due to the emergence Omicron variants will reduce global oil demand. However, crude production is expected to continue to grow, particularly in the United States. Supply should exceed demand until at least next year.

OPEC (Organization of the Petroleum Exporting) however raised on Monday its global oil demand forecasts for the first three months of 2022.

“The bearish outlook of the IEA on the market is in sharp contrast to OPEC’s optimistic view, which it shared earlier this week when it issued its monthly outlook. “The divide suggests that volatility is likely to stay high in the immediate term,” ANZ commodities analysts wrote in a note.

A firming U.S. Dollar is also weighing on markets, making commodities that are priced in dollars more expensive to other countries. For signs that the central bank might raise interest rates, markets will wait for Wednesday’s outcome from the U.S. Federal Reserve policy meetings.

Another bearish indicator was industry data which showed no decline in inventories as anticipated.

American Petroleum Institute data revealed that crude stockpiles fell by 815,000 barrels over the week to Dec. 10, as market sources indicate. This compares with a drop in oil prices of 2.1million barrels, which 10 analysts polled by Reuters expected.

However, distillate stocks declined by 1,000,000 barrels compared to analysts’ predictions for an increase in 700,000. barrels. Meanwhile, gasoline stocks increased by 426,000 barrels which was less than the expected.

The U.S. Energy Information Administration will release weekly data on Wednesday.