Oil prices dipped towards $74 a barrel on Tuesday after the International Energy Agency (IEA) said that the new Omicron coronavirus variant was set to dent the global demand recovery, while supplies were set to increase next year.

Brent crude oil futures dropped 24 cents, or 0.32 per cent, to $74.15 a barrel by 0957 GMT, while U.S. West Texas Intermediate (WTI) crude futures declined by 27 cents, or 0.38 per cent, to $71.02.

“The surge in new Covid-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is underway,” the Paris-based IEA said in its monthly oil report.

Governments around the world, including most recently Britain and Norway, have tightened restrictions to stop the spread of the Omicron variant.

The IEA lowered its forecast for oil demand this year and the next by 100,000 barrels per day (bpd) each, mostly due to the expected blow to jet fuel use from new travel curbs.

The Organization of the Petroleum Exporting Countries (Opec) on Monday raised its world oil demand forecast for the first quarter of 2022 and stuck to its timeline for a return to pre-pandemic levels of oil use, saying the Omicron coronavirus variant would have a mild and brief impact.

At the same time, the Asian Development Bank on Tuesday trimmed its growth forecasts for developing Asia for this year and next to reflect risks and uncertainty brought on by the variant, which could also hamper oil demand. On the supply side, Opec and other major producers including Russia, a group known as Opec+, plan to gradually increase supply every month by 400,000 barrels per day (bpd) after sharply cutting back output last year.

Output in the largest US shale basin is expected to surge to a record in January, according to a monthly forecast from the U.S. Energy Information Administration on Monday.