In the past two weeks, three major energy organizations have released their outlook for the immediate future of oil demand. While at times these outlook largely align with their demand projections, this time, as sometimes happens, they diverged.
The three organizations are OPEC, the International Energy Agency, and the US Energy Information Administration.
OPEC was the first. The cartel published its last monthly oil market report last week, expecting a slight effect of the Omicron variant of the coronavirus on oil demand and therefore leaving its demand projections for this year and next year unchanged. This represents a growth of 4.2 million bpd in 2022 compared to this year.
The group cited “improving the management of COVID-19 and increasing vaccination rates, allowing economic activity and mobility to return to pre-pandemic levels, by supporting transportation fuels in particular ”, as factors which would determine this growth in oil demand.
Meanwhile, the International Energy Agency said in its own Oil Market Report that the Omicron variant would slow the growth in demand, adding however that the effect would be temporary. The agency also slightly downgraded its demand projections for 2021 and 2022, from 100,000 b / d, to growth of 5.4 million b / d this year and 3.3 million b / d, respectively. / d next year.
The difference between OPEC’s demand growth projections of 4.5 million b / d and the IEA’s 3.3 million b / d is quite understandable. OPEC has a vested interest in increasing demand. The IEA, which in recent times has become more of a champion of the energy transition than an impartial energy agency, is skeptical about the future of oil demand. These biases are linked to affecting the calculations.
The Energy Information Administration, however, served perhaps the biggest surprise in the outlook for oil demand. In the latest edition of its Short-Term Energy Outlook, the authority predicts that next year oil demand will increase by 3.4 million barrels per day. This was a downward revision of 420,000 bpd from last month’s STEO projections.
Despite the differences in exact expectations, all three organizations remain generally optimistic about demand for oil, and that may be what matters more than the actual numbers, however attractive they may be.
“The increase 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 OMR. “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 transportation fuels and petrochemical raw materials to continue to show healthy growth. ”
The EIA, for its part, noted that “the potential effects of the spread of this variant are uncertain, which introduces downside risks to forecasts for global oil consumption, especially for jet fuel,” adding that “The Omicron variant has introduced additional uncertainty into oil markets for the coming months, and this uncertainty is reflected in the recent increase in oil price volatility.
And here is OPEC’s commentary on the factors determining demand trends: “The expected market balance continues to be determined by the evolution of the COVID19 pandemic, as a key driver of uncertainty, but The successful joint efforts of the DoC continue to closely monitor all developments in a timely and vigilant manner, to be able to react to rapidly changing market circumstances. “
In other words, while the three agencies do not agree on the direction of oil demand, they are completely in unison on what will drive it: the pandemic. Perhaps 2022 will be the last year when the pandemic remains the most important factor for oil demand, as some medical experts – and JP Morgan – have suggested that the Omicron variant is much milder than previous ones.
By Irina Slav for Oil Octobers
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