IEA: Strengthening global demand for oil

Strong points

• Global demand for oil is strengthening due to high gasoline consumption and increased international travel as more countries reopen their borders. However, new waves of Covid in Europe, weaker industrial activity and higher oil prices will temper the gains, leaving our oil demand growth forecast largely unchanged from last month’s report at 5.5mb / j for 2021 and 3.4 mb / d in 2022.
• US production is increasing amid rising oil prices. World oil supply is expected to increase by 1.5 mb / d in November and December, with the United States providing 400 mb / d of gain. Saudi Arabia and Russia combined would represent 330 mb / d, in line with OPEC + targets. Total oil supply had already jumped 1.4 mb / d in October after the US rebound from Hurricane Ida.
• Global refining throughput is expected to increase by nearly 3 mb / d from October to December at the end of seasonal maintenance. Refinery margins increased in October, driven by exceptionally tight product markets, despite sharp increases in crude oil prices. Further on, refinery flows should stabilize and remain generally stable in 1H22 before the seasonal increase in 3Q22.
• Total industry inventories in the OECD plunged 51 Mb in September, with holdings of crude oil and middle distillates accounting for most of the declines. In terms of regions, Europe led the draw. At 2,762 MB, total OECD industrial stocks were 250 MB below the five-year average and their lowest level since early 2015. Preliminary data for October indicate marginal inventory build-up.
• The drivers of the oil market have started to change and benchmark crude prices are falling accordingly. Brent crude futures were trading around $ 81 / bbl, down from a high of over $ 86 / bbl in October. In physical markets, North Sea Dated prices rose in October from $ 9.15 / bbl to $ 83.54 / bbl and WTI at Cushing rose $ 9.79 / bbl to $ 81.96 / bbl.

Is the tide turning?

The global oil market remains tight in all respects, but a reprieve from rising prices could be on the horizon. Contrary to the hopes expressed in Glasgow at COP26, it is not because demand is falling, but rather because of the increase in oil supplies. After another significant drop in inventories in September, benchmark crude oil prices jumped $ 9 / bbl to new highs above $ 86 / bbl for Brent and $ 84 / bbl for WTI. However, preliminary data and satellite observations of stock changes in October suggest that the tide may turn.

Global oil production is already on the rise. In October, oil supplies jumped 1.4 mb / d to 97.7 mb / d, with the US recovery from the hurricane accounting for half the increase. A further increase of 1.5 mb / d is expected in November and December even as OPEC + ignored calls from major consumers to increase beyond the 400 kb / d allocated per month to cool prices . During this period, the United States is now poised to provide the largest increase in supply of any country. We have raised our forecasts for the United States by 300 kb / d for 4Q21 and 200 kb / d on average in 2022, because current prices constitute a strong incentive to stimulate activity even if operators respect the commitments of discipline of capital. The United States should account for 60% of non-OPEC + supply gains in 2022, now forecast at 1.9 mb / d. Even so, the United States will not revert to pre-Covid rates until the end of 2022.

This increase will go some way to meet growing demand, still recovering from the Covid crisis in 2020. Refinery activity resumes after fall maintenance, while end user demand is poised to strengthen as more countries open up to international travel, mobility levels increase and vaccination campaigns accelerate. Nonetheless, new outbreaks of Covid in the northern hemisphere, slightly weaker industrial activity and higher oil prices will temper the gains, leaving our forecast for oil demand growth largely unchanged from last month’s report at 5.5 mb / d for 2021 and 3.4 mb / d in 2022.
Source: IEA

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Felix J. Dixon