Oil markets likely to tighten as need rises, supply ebbs

The global oil market is tightening and demand for 2022 is likely to be higher than expected and supply lower than forecast, the International Energy Agency said Wednesday.

Although the omicron variant was causing record infections, the surge was not denting oil demand as previous jumps in infections have, with travel and other transportation remaining “robust,” said the Paris-based forecasting group.

The findings in the group’s monthly Oil Market Report come as the industry faces difficulties raising production levels as prices climb. OPEC+ continues to fall short on its promised 400,000 barrel a day monthly increases, raising production by only 250,000 barrels a day in December. The shortfalls continue to be in Nigeria and Angola. Russia pumped slightly below its quota in December, tending to confirm it has reached its short-term limits.

Oil prices are now approaching $90 a barrel, exceeding the sevenyear highs reached in October.

Brent crude, the international standard, briefly traded at higher than $89 a barrel Wednesday, while West Texas Intermediate, the U.S. bench mark, was selling for higher than $86 a barrel.

The International Energy Agency said that these prices were likely to lead to more drilling and production in the United States, the world’s largest oil producer, and elsewhere. That additional oil could bring price relief.

On the other hand, the agency sketched out what could be an environment for further price rises. Oil in tank farms and other storage facilities in industrialized countries has reached seven-year lows, while spare capacity, the amount of oil that could be quickly produced, is likely to decrease to around 3 million barrels a day, or 3 percent of world supply, the IEA estimated. Most of those extra barrels are in Saudi Arabia and the United Arab Emirates.

If demand is strong or supply unexpectedly weak, those conditions mean “oil markets could be in for another volatile year in 2022,” the agency said.