By Stephanie Kelly

NEW YORK, (Reuters) – Benchmark futures indicate that oil supplies will be tight in early 2019, even though the Omicron coronavirus variant has caused concerns about fuel consumption.

A tighter market may lead to higher energy prices as OPEC+ fails to increase production, while U.S. drilling companies restrain their output to meet investor demand. The recovery of fuel consumption from the pandemic lows has led to steady declines in oil stocks.

The prices of oil contracts for delivery within the next few months will be much higher than those that are due to arrive in the future, which is a sign of rising demand. The price of a barrel of oil to be delivered in June is $4.10 higher than a barrel that will be delivered in December. This mark has been the highest since Nov. 2.

Barrels for December delivery are on sale at $5.70 more than December 2023. It is the most expensive barrel price since Nov.

John Kilduff from Again Capital LLC said, “Supplies have become somewhat tight.” We’ll be pricing those tight stocks here again as we move forward in the coming weeks.

According to Energy Information Administration, crude inventories of the United States (the world’s largest consumer) have dropped for six weeks consecutively to 417.9 Million barrels by the end the year. This is their lowest level since September. [EIA/S]

Analysts don’t see a significant increase in production anytime soon.

A Reuters survey revealed that the Organization of the Petroleum Exporting Countries (OPEC) in December missed its target increase in production.

As the demand improves, OPEC+ along with its allies are slowly relaxing 2020’s output cuts. However, many small producers can’t increase their supply. Others have been careful not to pump too much in case there are new COVID-19 setbacks.

EIA data shows that U.S. oil production is still far below its record of 13 million barrels/day in late 2019. This made America the top-producing country, and the average four-week figure was around 11.7million bpd. (Graphic: U.S. oil futures spreads recover after pause, https://fingfx.thomsonreuters.com/gfx/ce/lgpdwjnqkvo/Pasted%20image%201641484732501.png)

The spread of Omicron has caused prices to roar back, even though the Omicron variant put an end to the rally on the oil futures markets.

John Saucer, Mobius Risk Group vice president and chief of crude oil markets, said that “the curve is telling us that the market need your barrels right now.” It was tight in November. We had some pause but the tightness is returning.

EIA data revealed that the average U.S. implied fuel consumption rose by 4 weeks to 21.4 Million bpd during the week ending Dec. 24, which is the highest level since 2019.

Saucer declared that “Demand exceeded all our expectations”.