The IEA believes the oil market is tighter than expected Omicron has hardly affected demand

The International Energy Agency (IEA) said the global oil market situation appeared to be more tense than previously thought, with the latest strain of the coronavirus unexpectedly having little impact on demand and causing supply disruptions.

In its monthly report, the IEA said the excess supply facing global markets is decreasing this year, with oil demand revised up slightly from the previous month and on track to reach pre-pandemic levels of 99.7 million barrels per day. At the same time, supply constraints have made it difficult for the OPEC+ alliance to resume suspended production, while producers in other regions have suffered a series of disruptions that have weakened spare capacity space.

Just hours before the Paris-based agency unveiled more bullish prospects, the Price of Crude oil in the London market rose above $89 a barrel, hitting a seven-year high. The rally poses a challenge for consumer countries and central banks that are trying to spur a recovery and fend off soaring inflation and a cost-of-living crisis.

The IEA raised its global daily oil demand forecasts for both 2021 and 2022 by 200,000 barrels. Daily consumption will increase by 5.5 million barrels and 3.3 million barrels, respectively.

"The number of COVID-19 infections is another record. But this time, the impact of the spike in oil prices on oil consumption is weaker," the International Energy Agency said.

As demand recovers, the supply situation becomes more fragile. The agency said the OPEC+ alliance achieved only a 60 percent increase in production in December. Nigeria, Angola, Malaysia and even Russia are struggling to cope with capacity constraints.

The IEA said that as OPEC+ tries to restore the remaining shelved capacity, the alliance's spare capacity could be reduced from the current about 5 million barrels per day to 3 million barrels per day. Even if production in the U.S., Canada and Brazil grows significantly, it could leave the market vulnerable to price volatility, the agency said.

The group's supply disruptions intensified on Tuesday, with a key pipeline from Iraq to Turkey suspended by an explosion, reminding people that spare capacity is critical to maintaining a steady supply of oil.

Sources of supply in other emergencies have also declined, with fuel inventories in developed countries falling by 6.1 million barrels last November to a seven-year low, the agency said.

This article originated from the financial world