DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed lower early Thursday after the complex advanced during the early part of the week on easing fears over the Omicron COVID-9 variant, but concerns over demand growth remain nonetheless, while talks over reviving the Joint Comprehensive Plan of Action resumed in Vienna, Austria, Thursday.

Deeming the post-Thanksgiving holiday sell-off overdone after early signs suggest that Omicron while more transmittable appears less lethal, oil futures rallied this week through Wednesday. Yet worries over demand persist as mobility and travel restrictions continue in parts of Europe and Asia. On Tuesday, the Energy Information Administration revised lowered their forecast for global oil demand for 2022 by 420,000 barrels per day (bpd) from their projection in November to 100.46 million bpd.

EIA does project oversupply for next year despite adjusting their expectation for world oil production down 490,000 bpd to 100.93 million bpd, with the Organization of the Petroleum Exporting Countries also this month projecting a supply surplus in early 2022. OPEC+ earlier this month agreed to move ahead with a 400,000-bpd production increase in January despite the weakening demand outlook, sticking to their July agreement of gradually unwinding production cuts instituted in April 2020, but also said they could adjust that decision if they believe demand will weaken further than projected.

It remains unclear if resumed talks in Vienna over reviving the JCPOA will yield a deal after the United States withdrew from the agreement in 2018 under the Trump administration. The discussion is taking place through intermediaries, as Tehran has refused to talk directly with U.S. officials, while reportedly hardening its position. U.S. officials have suggested it might no longer make sense to revive the agreement since Iran has advanced its nuclear capability beyond the terms of the JCPOA, but the Biden administration is also seen as desperate for an agreement. While an agreement would lift sanctions on Iranian oil exports, adding more oil to the global market, Iran has already been selling more oil abroad including to China, as enforcement of sanctions have wavered under the Biden administration in contrast with stout enforcement during the Trump administration.

Oil production is also growing in the United States, with the EIA Wednesday reporting the third 100,000 bpd weekly increase in U.S. oil output during the week ended Dec. 3, now averaging 11.7 million bpd. That's the greatest weekly production rate since the depths of the U.S. lockdowns in response to the COVID-19 pandemic in April 2020. EIA projects U.S. output to average 11.8 million bpd in 2022, climbing to 12.1 million bpd in the fourth quarter.

Amid concern over slowing demand growth and rising oil production despite downward revisions, the backwardated market structures for West Texas Intermediate and Brent crude futures continue to weaken. Commodity Futures Trading Commission also shows money managers reducing long positions in the oil complex, as the bullish scenario softens.

Oil futures near 9 a.m. ET reversed down after the crude and ULSD contracts again encountered resistance at the 50% retracement points for their respective post-Thanksgiving selloffs. NYMEX January WTI futures were down $0.65 at $71.71 per barrel (bbl) and ICE February Brent fell $0.70 to $75.12. NYMEX January ULSD futures were 1.20 cents lower near $2.2485, and January RBOB futures fell 1.25 cents to near $2.1220 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com