(Bloomberg) — Oil fell as the International Energy Agency said the global oil market has returned to surplus, while some countries tightened restrictions in an effort to tame the omicron variant’s spread.

Futures prices in New York were down 0.8% Tuesday. The IEA said rebounding output has created an oversupply that’s likely to swell further next year. Italy will ask travelers from European Union countries to submit a negative Covid-19 testing, while Scotland encourages no more than three households mix.

As the market digests the near-term effects of omicron on oil demand, Brent’s so-called prompt spread flipped into contango for the first time since March, excluding contract expiration days. A bearish market structure in which oil futures is traded at a discount on the contract for immediate delivery indicates that there will be plenty of supply for the near term.

“Omicron has the market spooked and news of new restrictions in the U.K. has led to more selling,” said Spencer Vosko, director for crude oil at Black Diamond Commodities LLC. “Brent contango is steeper in the dated market and has now appeared in futures markets, leading to a weaker sentiment.”

The new Covid-19 version of Covid-19 has helped oil to make a partial recover from the bear market it entered at the beginning of November. Economic risks from the omicron strain and central banks’ efforts to rein in accelerating inflation are likely to see reduced risk appetite from traders, especially with the end of the year approaching.

New study data showed Pfizer Inc (NYSE:).’s experimental Covid-19 pill was highly effective at keeping patients out of the hospital, but less adept at erasing milder symptoms often associated with breakthrough infections. New York Governor Kathy Hochul has issued an indoor mask mandate to all businesses, despite there not being any vaccine requirement. Since Thanksgiving, hospitalizations rose 70%. 

The IEA anticipates oil inventories in global will increase early next year because supplies are plentiful with the Organization of Petroleum Exporting Countries, its allies, ramping up production, key consumers planning to sell from strategic reserves and record U.S., Canada, and Brazil next years. In a Tuesday report, the IEA stated that the new strain of virus is causing jet fuel demand to slow down.

OPEC reported Monday that they had increased estimates for crude oil consumption by 1.1million barrels per day in its first quarter report, but maintained that there was still a surplus.

According to sources familiar with the data, Tuesday’s report by industry-funded American Petroleum Institute stated that supply fell by 815,000 barrels last Wednesday. Data also revealed that stockpiles rose at Cushing in Oklahoma, which is the largest storage facility in the U.S. This Wednesday will see the release of U.S. Government’s weekly inventory.

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