Commodities 2022: the recovery in oil demand seems to be on course despite the threat of omicron

Strong points

Global oil demand exceeds pre-pandemic levels

Pent-up demand, wakeup calls fueling global resilience

Inflation risk weighs on the pace of recovery

Even as cases of the omicron variant of COVID continue to surge around the world, most market watchers remain optimistic that 2022 will be the year global oil demand finally catches up to and exceeds pre-COIVD levels. .

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The appearance of the highly transmissible mutation could slow the pace of recovery in oil demand but will not derail its trajectory, the consensus seems to be.

Underlying fundamentals for oil demand remain strong through 2022. Pent-up demand is already stretching supply lines to the limit, while booster bites and earlier infections reduce the risk of serious damage from the virus .

Despite headwinds, the International Energy Agency and OPEC expect oil demand to surpass the 100 million b/d mark in the summer of 2022, returning to pre-levels the COVID-induced crisis in the first half of 2020.

Although the recovery has seen a slowdown with the increase in winter cases in many parts of the northern hemisphere, new lockdowns have remained limited and high-frequency mobility data shows limited impact.

Indeed, most high-frequency data showed that global mobility is now rebounding from an initial pullback on omicron restrictions.

While mobility particularly faltered in Europe in early December, adjusted Google data shows global activity improved to just 3.8% below pre-COVID levels in the week to December 19, the highest since the pandemic caused oil consumption to plummet in 2020.

The data, which represents countries consuming around half of the world’s oil, suggests the demand recovery has been little disrupted by the variant, despite regional disparities.

Global capacity for scheduled airlines was also up 1% on the week beginning December 20, with even European air traffic improving despite restrictions on British travelers to France and Germany.


Diminishing returns

Damien Courvalin, head of energy research at Goldman Sachs, sees omicron as a near-term price risk, with 2022/23 remaining a “structural bull market” supported by the global economy becoming more resilient to the crisis. .

“We already had record demand before this new variant and you add higher demand for jets and the global economy continues to grow,” Courvalin said Dec. 17. “You see how we’re going to average a new demand record in 2022, and again, in 2023.”

Goldman Sachs, still bullish, forecasts Brent to remain around $85/bbl in 2022 and 2023, but sees a return to $100/bbl as a possibility.

S&P Global Platts Analytics expects global oil demand to grow by 4.6 to 4.8 million bpd in 2022, just under 5% to an average of 103 million bpd . At this level, total demand will exceed pre-pandemic levels by around 0.6 to 0.8 million bpd in 2022.

“In 2022, we expect new variants of COVID like delta and omicron to continue to emerge, as well as localized outbreaks of coronavirus, but not of the magnitude seen in January 2021, May 2021 or even the peaks of August 2021. Total demand is expected to extend its recovery, although the pace of improvement will slow,” Platts Analytics said in a note.


Optimistic OPEC

Initial concerns about the omicron that sent oil prices plummeting nearly 20% in a few days in early December are “exaggerated given progress in vaccination in major consumer countries,” Commerzbank said in a note.

OPEC+ also signaled that it would moderate its planned production expansion of 400,000 bpd per month if demand weakens significantly.

Even the IEA, which on December 14 reduced its outlook on both the level of demand in the first quarter of 2022 and on year-on-year growth, is hedging its bets.

“The new containment measures put in place to halt the spread of the virus are likely to have a more moderate impact on the economy compared to previous waves of COVID…We expect demand for road transport fuels and of petrochemical raw materials continues to show healthy growth,” it said.

OPEC is even more optimistic about the resilience of demand and expects a slightly surplus oil market in the second half of 2022.

Global oil inventories also rebounded strongly. According to the IEA, OECD commercial oil inventories in October were 243 million barrels below the 5-year average. By comparison, at the height of the pandemic, OECD oil inventories in mid-June 2020 were almost 300 million barrels above the 5-year average.

In the United States, the world’s largest consumer of oil, gasoline demand has already reached 2019 levels.

Inflationary threat

Still, fears persist that the avoidance potential of omicron’s vaccination could force a new wave of mobility restrictions, a move that would affect air travel and jet fuel the most.

As it stands, Platts Analytics sees jet fuel posting the largest percentage and volume gains of any petroleum product in 2022 at 31% or 1.7 million bpd. But global jet demand is still not expected to return to pre-COVID levels until 2024 at the earliest.

Gasoline and diesel are both expected to gain around 4%, or around 1 million bpd each, to reach 2019 levels in the second half. Among the other products, only ethane will outperform the barrel average and gain 8%, or nearly 0.4 million bpd.

Soaring inflation could also dampen demand.

As the global economy emerges from the pandemic, markets expect the US Federal Reserve and other central banks to begin raising interest rates in early 2022 in a bid to slow economic growth. A resulting stronger dollar would also increase the cost of oil for importing countries.

While additional demand for oil will come from the switch from gas to oil, with power companies and refiners avoiding record gas prices, but the effect has been less than expected, according to the IEA, with little sign that this is happening in India, and Standardization of Chinese electricity production.

But if current trends continue and economies continue to cautiously reopen despite the threat of omicron, the IEA forecast could remain the only pessimistic voice on the recovery in near-term oil demand at the start of the news. year.



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Felix J. Dixon