MELBOURNE (Reuters) - Oil prices fell on Wednesday as rising fuel stockpiles in the United States raised concerns of declining demand in the world's biggest oil consumer amid a massive spike in COVID-19 cases caused by the Omicron variant.
U.S. gasoline stockpiles rose by 7.1 million barrels in the week to Dec. 31, the American Petroleum Institute (API) reported late on Tuesday. Distillate stockpiles climbed by 4.4 million barrels in the week. [API/S]
The surging stockpiles, which exceeded analysts' expectations, undermined the bullish outlook from investors during the previous session when price climbed more than 1% as market participants took the decision of major producers to add supply next month as a sign of confidence that surging COVID-19 cases would not hit demand for long.
Brent crude futures fell 28 cents, or 0.4%, to $79.72 a barrel at 0329 GMT after hitting a high of $80.26, while U.S. West Texas Intermediate (WTI) crude futures fell 29 cents, or 0.4%, to $76.70 a barrel.
"We think market fundamentals have weakened recently as reflected in the aggregate timespread which is a good indicator of the prevailing demand-supply balance," Barclays (LON:BARC) analyst Amarpreet Singh said in a note.
The prevailing backwardation in crude markets, when prices for later-dated crude supply is more than prompt futures, has declined for Brent futures from a two-year high in November.
The price difference between the front-month Brent futures and that for delivery in six months has fallen to $3 a barrel on Wednesday from $6.30 on Nov. 3, reflecting concerns about crude demand amid the surge in Omicron cases.
Barclay's Singh believes that Omicron will have less of an impact on oil demand as it proves more mild than initially feared.
But, "there will be some effect on demand from increased restrictions on international travel and the sheer scale of the recent spread," he wrote.
As expected, The Organization of the Petroleum Exporting Countries, Russia and allies, together called OPEC+, on Tuesday agreed to add another 400,000 barrels per day of supply in February, as it has every month since August.
The decision to stick their output increase reflected the group's view that Omicron will only have a short-lived impact on global energy demand.
"The plan to gradually return production can move forward as OPEC+ anticipates a tighter market in the first quarter," OANDA analyst Edward Moya said.