Oil prices will face downward pressure next year as OPEC sees oversupply expanding, report says

• Oil markets will start next year with a worsening supply glut, according to an OPEC+ forecast viewed by Reuters.
• OPEC+ expects a surplus of 2 million barrels per day in January, 3.4 million in February, and 3.8 million in March.
• The data comes as the emergence of the new coronavirus variant generate uncertainty around demand for oil.

OPEC+ sees an expanding oversupply in global oil markets at the start of next year, putting additional pressure on crude oil prices.

The Organization of the Petroleum Exporting Countries and non-member allies such as Russia expect a surplus of 2 million barrels per day in January 2022, 3.4 million in February, and 3.8 million in March, according to a document viewed by Reuters on Wednesday.

The forecast comes as the emergence of the Omicron coronavirus variant rocked the prices of global commodities and equities. Amid renewed uncertainty about demand as restrictions are re-imposed, oil analysts have warned OPEC+ may pause its plan to continue gradual production hikes. OPEC+ agreed in July to lift output by 400,000 barrels a day each month.

But so far, the OPEC+ forecast said the new variant's impact "seems to be jet-fuel related," especially in Africa and Europe, Reuters reported. "Transportation fuel demand within Europe might be also affected," the document added.

OPEC met Wednesday to discuss production, while OPEC+ will convene Thursday. A decision will be announced after the two-day meeting.

Oil prices reversed sharply Wednesday as the first US Omicron case was confirmed, snuffing out an attempted rebound from an Omicron-sparked rout. After surging more than 4% earlier in the day, West Texas Intermediate crude oil settled 0.9% lower at $65.57 per barrel, and Brent crude, oil's international benchmark, slipped 0.2% to $69.08 per barrel. In November, oil prices suffered their biggest one-month drop since March 2020.

"Oil remains extremely volatile ahead of tomorrow's OPEC+ meeting when the group will decide if and how to respond to the Omicron news," Craig Erlam, senior market analyst at Oanda, said in a Wednesday note. "I still think the meeting has come too soon ... And I'm not sure there's enough at this stage to make an informed judgment."

Erlam added that the coordinated release of strategic petroleum reserves by major oil-consuming nations in October may influence the decision.

Despite the recent slide, JPMorgan estimated Tuesday that Brent prices could hit $150 per barrel in 2023 as OPEC+ defends higher prices. And on Wednesday, Jefferies strategist Christopher Wood also said oil prices could hit $150, if economies return fully to normal from the pandemic as rising demand runs into a supply squeeze.