Oil Slips by More Than 1% on Rising Supply, Omicron

Oil Prices Drop Over 1% Due to Rising Supply and Omicron Fears

By Ahmad Ghaddar

LONDON (Reuters) -Oil prices fell for a third day straight on Wednesday on growing signs that supply growth will outpace demand next year, and as the World Health Organization (WHO) said COVID-19 vaccines may be less effective against the Omicron variant.

Brent crude futures were down 88 cents, or 1.2%, to $72.82 a barrel at 1452 GMT, after losing 69 cents on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures fell $1.01, or 1.4%, to $69.72 a barrel, after losing 56 cents in the previous session.

The front-month Brent contract is trading at a small premium to the second month, after trading briefly at a small discount – a market structure known as contango – on Tuesday.

“Widespread restrictions will be the recipe for further gloom leading to continuous weakness and dealing with contango in the oil market in the next month or two has now become a possibility,” Tamas Varga of oil brokerage PVM said.

Norway earlier this week tightened restrictions to stem the spread of Omicron.

The WHO said on Wednesday preliminary evidence indicated vaccines may be less effective against infection and transmission linked to the Omicron coronavirus variant, which also carries a higher risk of reinfection.

The International Energy Agency (IEA) said on Tuesday a surge in COVID-19 cases with the emergence of the variant would dent global demand for oil at the same time that crude output is set to increase, especially in the United States, with supply set to exceed demand through at least the end of next year.

In contrast, the Organization of the Petroleum Exporting Countries (OPEC) on Monday raised its world oil demand forecast for the first quarter of 2022.

In another bearish indicator, industry data showed that U.S. crude inventories last week did not decline as much as expected.

American Petroleum Institute data showed U.S. crude stocks fell by 815,000 barrels in the week ended Dec. 10, according to market sources, compared with the 2.1 million barrel drop that 10 analysts polled by Reuters had expected.

However, distillate stocks fell by 1 million barrels, compared with analysts’ forecasts for an increase of 700,000 barrels, and gasoline stocks rose by 426,000 barrels, which was a smaller build than expected.

Weekly data from the U.S. Energy Information Administration is due later on Wednesday.

(Additional reporting by Sonali Paul in Melbourne and Florence Tan in SingaporeEditing by Jason Neely and Mark Potter)