IEA: Omicron to temporarily slow recovery in global oil demand

The increase in COVID cases is expected to temporarily slow the recovery in global oil demand, but the impact of the Omicron variant will likely be more moderate than previous waves and will not upset the current recovery in demand, the said. International Energy Agency (IEA) on Tuesday.

The recent spike in COVID cases is expected to slow the recovery in demand in the coming weeks, with jet fuel demand being the hardest hit, the IEA said in its latest oil market report for December.

Due to new restrictions on international travel, the IEA has slightly revised downward – by 100,000 barrels per day (bpd) – its forecast for growth in demand for this year and next. In 2021, the IEA expects demand for oil to increase by 5.4 million b / d from 2020, and an additional 3.3 million b / d in 2022, reaching levels of before COVID of 99.5 million bpd.

This month’s demand growth projections are slightly lower than forecast in the November report, in which the IEA forecast oil demand growth of 5.5 million bpd this year and 3.4 million bpd. million bpd next year.

Despite the downward revision, the IEA does not expect a massive drop in demand of the magnitude the oil market appears to have predicted in late November when the first reports of the new variant emerged.

“The rise in the number of new Covid-19 cases is expected to temporarily slow, but not disrupt, the ongoing recovery in demand for oil,” the IEA said in its report today.

“The new containment measures put in place to stop the spread of the virus will likely have a more moderate impact on the economy compared to previous waves of Covid, especially due to widespread vaccination campaigns. As a result, we expect the demand for road transport fuels and petrochemical raw materials to continue to show healthy growth, ”the agency added.

OPEC said in its monthly report on Monday that the impact of the Omicron COVID variant on global oil demand would be slight and short-lived, and left its demand growth forecast for 2021 and 2022 unchanged.

The IEA said today that global oil production is expected to exceed demand as early as this month, driven by growth in the United States and OPEC + countries.

“A much needed relief for tight markets is on its way, with global oil supply expected to exceed demand from this month,” the IEA noted.

If OPEC + continues to unwind its cuts, the first quarter of 2022 will see a surplus of 1.7 million bpd, and the excess supply could reach 2 million bpd in the second quarter of 2022, according to the agency.

“If that were to happen, 2022 could indeed become more comfortable,” the IEA said.

By Tsvetana Paraskova for OilUSD

Steve R. Hansen