(Bloomberg) — Oil held a decline as an increase in OPEC’s demand forecast for next quarter was offset by uncertainty over the omicron virus variant.
Brent crude fell 0.6% after slipping 1% on Monday. The Organization of Petroleum Exporting Countries boosted estimates for oil consumption in the first quarter by a substantial 1.1 million barrels a day in its monthly report from the group’s research department, but said it still sees a surplus.
The backwardation in the benchmark’s prompt timespread narrowed further on Tuesday and is inching toward a bearish contango structure — where near-dated contracts are cheaper than later ones, which encourages storing of oil. The spread shrank to 11 cents a barrel in backwardation, compared with $1.34 at the start of last month.
Oil has staged a partial recovery this month after tumbling into a bear market at the end of November due to the emergence of the new Covid-19 variant. Economic risks from the omicron strain and central bank efforts to rein in accelerating inflation are likely to see reduced risk appetite from traders, especially with the end of the year approaching.
“Volumes are thinning as it’s the year-end and there’s no reason to be risk-taking,” said Kim Kwangrae, Seoul-based senior commodities analyst at Samsung Futures Inc. “OPEC’s move to upgrade its demand outlook for early next year can be a positive signal for the market, but it can also be seen as a move done to justify the group’s increases in the months to come.”
OPEC’s increase in forecast global demand for the first three months of 2022 is equivalent to annual world consumption growth in a typical year before the pandemic as the group estimated the omicron variant’s impact to be mild and short-lived. However, that estimate was offset by downgrades to the second and third quarters.
Omicron dented the protection afforded by two doses of Pfizer Inc.’s and AstraZeneca Plc’s Covid vaccines as feared, according to University of Oxford researchers, while U.K. Prime Minister Boris Johnson declined to rule out further restrictions to contain the variant.
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