IEA sees faster growth in oil demand

Strong points

• The current energy crisis has caused a switch to oil which could increase demand by 500 kb / d compared to normal conditions. This contributed to an upward revision of our 2021 and 2022 forecasts, of 170 Mb / d and 210 Mb / d respectively. Global oil demand is now expected to increase by 5.5 mb / d in 2021 and 3.3 mb / d in 2022 to reach 99.6 mb / d, slightly above pre-Covid levels.
• Global oil supply has resumed its uptrend as OPEC + continues to cut cuts, the US recovers from Hurricane Ida and maintenance comes to a halt. From September to the end of 2021, global production is expected to increase by 2.7 mb / d, with OPEC + accounting for 1.5 mb / d and non-OPEC + pumping the rest. Total oil production fell from 260 mb / d in September to 96 mb / d, due to larger losses from hurricanes in the United States.
• Global refinery activity in 3Q21 continued to disappoint, with lower throughputs in China and India in August only partially offset by better performance in OECD Asia and Europe. The implicit 3Q21 refined product balances show the largest circulation in eight years, which explains the sharp increase in refinery margins in September despite significantly higher crude prices.
• Total OECD industry inventories fell 28MB in August to 2,824MB, 162MB below the pre-Covid five-year average. Preliminary September data for the United States, Europe and Japan show that inventories in the land industry fell a further 23 mb. Crude oil held in floating storage declined from 8.5 mb to 98 mb in August.
• Crude oil prices hit a seven-year high in early October, boosted by energy supply concerns and continued pulls on oil stocks. North Sea Dated prices rose an average of $ 3.65 / bbl in September to $ 74.40 / bbl and WTI at Cushing rose $ 3.84 / bbl to $ 71.56 / bbl. A strong shift limited the price differentials of crude versus marker crudes during the month.

Bumpy road ahead

Oil prices are hitting multi-year highs as a shortage of natural gas, LNG and coal drives demand for oil, which could keep the market in deficit until at least the end of the year. Brent crude futures rose more than $ 10 / bbl to exceed $ 83 / bbl, while WTI traded above $ 80 / bbl at the time of writing.

Soaring prices have swept the entire global energy chain, fueled by robust economic growth as the world emerges from the pandemic. Record-breaking coal and gas prices along with blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations buzzing. Rising energy prices are also adding to inflationary pressures which, along with power outages, could lead to lower industrial activity and slower economic recovery.

For now, a reduction in the number of new cases of Covid and increasing mobility is supporting demand for oil. Global gasoline demand is currently 2% below pre-Covid levels against a deficit of more than 10% at the start of the year. Air travel is even more lagging behind. In total, global oil demand is expected to increase by 5.5 mb / d, reaching 96.3 mb / d in 2021 and 3.3 mb / d in 2022, when it is expected to reach pre-Covid levels .

Global oil supply, meanwhile, is expected to rise sharply in October as US production rebounds from Hurricane Ida and OPEC + continues to cut cuts. Earlier this month, the producer group reconfirmed its agreement to increase production by 400 Mb / d for November, despite calls from major consuming countries for a more substantial increase to curb the decline in global oil stocks and the price increase. Preliminary data shows that OECD industry inventories fell by $ 23 million in September to $ 210 million below their five-year average and to their lowest level since March 2015.

With OPEC + currently on track to pump 700 kb / d below the call for its gross in 4Q21, stocks will continue to decline. As the block ramps up production, its spare capacity will decrease. Compared to a 9 mb / d cushion in 1Q21, effective reserve capacity could fall below 4 mb / d by 2Q22 and be concentrated in only a few countries in the Middle East, although supply is expected exceed demand. The reduction in global reserve capacity underscores the need for more investment to meet demand in the future.

As the IEA’s World Energy Outlook 2021 published this week points out, the world is not investing enough to meet its future energy needs. Transition spending is gradually increasing, but remains well below what is needed to sustainably meet the growing demand for energy services. At the same time, the amount spent on oil appears to be geared towards a world of stagnant or declining demand. Increased spending on clean energy transitions paves the way, but it has to happen quickly or global energy markets will face a bumpy road.
Source: IEA

Steve R. Hansen

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