Covid surge could slow recovery in oil demand – IEA

The Paris-based agency said it had downgraded its outlook for global oil demand by 0.1 million barrels since last month’s report for 2021 and 2022, due to new restrictions on international travel and reduced consumption of jet fuel.

He has now estimated that demand will increase by 5.4 million barrels / day this year and an additional 3.3 million barrels / day next year, when it rebounds to pre-Covid levels of 99.5 million. barrels / day.

“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 latest report.

“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,” he said.

“As a result, we expect the demand for road transportation fuels and petrochemical raw materials to continue to show healthy growth. However, due to new restrictions on international travel, we have downgraded our forecast for global oil demand for 2021 and 2022… primarily to reflect reduced jet fuel consumption.

The emergence of the Covid-19 Omicron variant in late November “triggered a sharp drop in oil, but initial pessimism has now given way to a more measured response,” the IEA said.

Indeed, in early December, the benchmark price for Brent North Sea crude oil was trading around $ 21 below the multi-year peak above $ 86 / bbl reached in October. It has since recovered somewhat to around USD 75 / bbl.

Tuesday, the group of 13 OPEC nations noted he expected the impact of the Omicron variant on global oil demand to be “light and short-lived, as the world becomes better equipped to handle Covid-19 and its related challenges.”

Increasing offer
Regarding oil production, the IEA said world production increased by 0.97 million barrels / day month-on-month in November. “For a second consecutive month, the biggest increase came from the United States, where drilling activity is accelerating,” he said.

“As the upward trend in supply stretches through 2022, the United States, Canada and Brazil are expected to pump to their highest annual levels on record, increasing output from non-member countries of Opec + from here [1.8m bbl/day] in 2022 globally.

Meanwhile, the oil production of Opec and its Russian-led partners, known as Opec +, increased by 0.45 million barrels per day in November, according to the IEA report. .

“Saudi Arabia and Russia could also set records [in 2022], if the remaining Opec + cuts are fully unwound. In this case, the world supply would increase by [6.4m bbl/day] next year compared to a [1.5m bbl/day] increase in 2021.

OPEC + agreed this month to increase the oil supply in January by 0.4 million barrels a day, the same amount it has seen every month since August. It had cut production to a record 9.7 million barrels per day in May-July 2020 due to the destruction of demand caused by the Covid-led lockdown measures.

Surplus in 2022?
The IEA noted that a potential global supply oversupply could emerge in the first half of next year, especially with the release of additional barrels from strategic oil reserves in the United States and other major oil consuming countries.

The United States announced on November 23 the release of up to 50 million barrels of oil from the country’s Strategic Reserve (SPR), with parallel actions from China, India, South Korea, from Japan and the United Kingdom, with the aim of reducing energy prices.

“While details on volumes and lead times are still scarce, the combined SPR versions could potentially reach $ 70 million. [barrels]. These volumes, if absorbed by the market, could help replenish the industry’s depleted stocks, ”the IEA said, noting that the OECD industry stocks in October were approximately lower. 240 million barrels at most recent five-year average.

The IEA said that easing demand combined with steadily increasing supply – and assuming Opec + continues to scale back its production cuts – could see a surplus of 1.7 million barrels / day materialize in the first quarter and 2 million barrels / day in the second quarter.

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


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Felix J. Dixon