Oil demand will exceed pre-Covid levels in 2022, says IEA
Global oil demand will exceed pre-pandemic levels this year thanks to growth in Covid-19 vaccination rates and as recent virus surges have not proven severe enough to warrant a return to lockdown measures. strict lockdowns, the International Energy Agency said on Wednesday.
In its monthly oil market report, the IEA raised its oil demand growth forecast for the coming year by 200,000 barrels per day to 3.3 million barrels per day. The Paris-based agency also raised its demand growth forecast for 2021 by 200,000 barrels per day to 5.5 million barrels per day.
Considering the IEA’s more optimistic forecasts are signs that recent coronavirus variants have spread faster but less deadly, helping to build global economic resilience to the virus and allowing states to continue on the path to a gradual removal of lockdown restrictions.
“The number of Covid cases is exploding around the world but the measures taken by governments to contain the virus are less severe than in previous waves and their impact on economic activity and oil demand remains relatively moderate,” said the IEA.
While the Omicron variant has seen infection rates reach record highs, its milder nature should help spread immunity to the virus and aid a faster return to pre-virus oil demand, a said the agency.
“At the current rate of transmission, a large portion of the population will likely have acquired immunity through infection or vaccination by the end of the first trimester,” the group said. “As a result, mobility restrictions could be minimal in the second half.”
Total demand this year is expected to be 99.7 million barrels per day, about 200,000 barrels per day above 2019 levels, the IEA said. Last month, the IEA expected oil demand this year to be broadly the same as pre-pandemic levels.
A global energy crisis that saw natural gas prices soar was another factor supporting the IEA’s forecast for oil demand. Soaring natural gas prices have led to increased demand for cheaper oil as an energy source, a trend that added 100,000 barrels per day of additional oil demand last month, the IEA said.
While the IEA’s view on demand has strengthened, the body still expects supply to exceed demand by a narrow margin throughout 2022, despite signs that major producers were struggling to increase production to agreed levels.
An alliance of the Organization of Petroleum Producing Countries and a collection of other major producers including Russia – known collectively as OPEC+ – missed its planned production targets of 790,000 barrels per day on the month last.
Global oil supply increased by a modest 130,000 barrels per day last month to 98.6 million barrels per day.
The combination of robust demand and tepid increases in supply is helping to lower crude inventories, which analysts say will keep oil prices buoyant this year.
The IEA said inventories in the wealthiest countries that make up the Organization for Economic Co-operation and Development fell 6.1 million barrels in November to a seven-year low of 2.76 billion barrels. Preliminary data showed a further decline of 45 million barrels in December.
Oil prices this week hit their highest levels since October 2014. West Texas Intermediate, the US crude benchmark, added $1.53 on Wednesday to close at $86.96 a barrel. Brent, the main international price, rose 1.1% to end at $88.44.
In its own report on Tuesday, OPEC offered a similar view that recent virus variants had not weighed heavily on demand, but kept its demand growth forecasts for 2021 and 2022 unchanged.
Write to Will Horner at William.Horner@wsj.com
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