Oil production is on the verge of exceeding demand this month, potentially easing pressure on prices, the International Energy Agency said Tuesday.
“Much needed relief for tight markets is on the way,” the Paris-based forecasting group said in its Monthly Oil Report.
Oil prices have roughly doubled over the past year, leading to higher prices at the pump for refined products like gasoline, which have been large contributors to soaring inflation in the United States and other countries.
The agency modestly trimmed its forecasts for demand for both 2021 and 2022 in response to the emergence of the omicron variant of the coronavirus but said that the surge in new cases would likely “temporarily slow” rather than “upend” the ongoing recovery in oil consumption.
The group said that the key factor in its improved outlook was rising oil production in the United States, Canada and Brazil. If the producers’ group known as OPEC+, which includes Saudi Arabia and Russia, continues to gradually raise production, substantial surpluses of oil could accumulate next year, the monthly report said.
Analysts say that oil prices are strongly influenced by the levels of stocks of the fuel, which have been drawn down well below normal in recent months, because of production restraint by the OPEC+, the slow recovery of U.S. drilling and economic recovery around the world after pandemic lockdowns.
Responding to consumer complaints and political criticism, the Biden administration Nov. 23 announced a release of up to 50 million barrels of oil from the U.S. strategic reserves, along with similar actions by China, South Korea, India, Japan and Britain. This rebellion of consuming nations over high prices could add about 70 million barrels to the market, further replenishing what have been tight supplies.
The emergence of the omicron variant along with the threatened release of oil reserves led to a sharp fall in prices in November from their October highs of over $80 a barrel. Prices have since recovered some of those losses, with Brent crude, the international standard, trading at about $74 a barrel Tuesday and West Texas Intermediate, the U.S. standard, selling for about $71 a barrel.