OPEC lowers oil demand forecast for 2021, but consumption remains strong

Although strong, oil consumption has been uneven in the first nine months of 2021, interrupted by outbreaks of the Delta variant of the coronavirus. This has led the world’s largest cartel of crude producers to revise down its demand outlook for the full year.

The Organization of the Petroleum Exporting Countries (OPEC), however, said on Wednesday that high natural gas prices in Europe, Asia and South America could spur a widespread switch from gas to oil this winter, creating a spike in oil demand at the end of this year and next. .

“Soaring natural gas prices to record highs, particularly in Europe in September, have sparked growing interest in switching from natural gas to liquid fuels at the industrial level, as energy companies attempt to cut costs. costs,” OPEC researchers said. said in their monthly oil market report.

“If this trend continues, fuels such as fuel oil, diesel and naphtha could see support, driven by increased demand from power generation, refining and petrochemical use,” they said. they added.

Global natural gas supply challenges have sent Henry Hub futures soaring over the past month, already motivating corners of the power sector to switch from gas to oil in Asia.

This supported Brent prices in October. The international benchmark hovered above $83/barrel in intraday trading on Wednesday, around its highest level for the year.

OPEC estimated that demand in 2022 would increase by 4.2 million bpd, unchanged from its September outlook. It predicted that global demand would average 100.8 million bpd over the coming year. The cartel, however, lowered its estimate for this year. It said oil demand in 2021 would increase by 5.8 million bpd from a year earlier, down from its previous growth forecast of 5.96 million bpd.

“The downward revision is mainly driven by weaker than expected actual data for the first three quarters of this year, despite healthy oil demand assumptions for the last quarter of the year, which will be supported by the seasonal rise in petrochemical and fuel oil demand and the potential shift from natural gas to petroleum products due to high gas prices,” OPEC researchers said.

In addition to outbreaks over the summer, they also cited “concerns of potential renewal” of travel and economic disruptions if the virus resurfaces during the winter months, when a majority of the world’s population spends longer indoors and infectious diseases tend to spread faster.

That said, OPEC expects any economic gloom to be temporary. The researchers said the global economic growth forecast for 2021 and 2022 was unchanged from the previous month’s assessment at 5.6% and 4.2%, respectively.

The cartel and its oil-producing allies, OPEC-plus, said economic strength is expected to boost demand and necessitate increased production through next year. The group this month approved a further production increase of 400,000 bpd for November, continuing a plan launched in August. It reviews the plan monthly but tentatively intends to extend it through much of 2022.

In addition to demand, the cartel noted that major U.S. producers are keeping production steady to preserve cash and invest in renewable energy projects.

Will American production return?

Analysts expect some increases in the coming months, given demand and strong prices, but most expect US production to increase only gradually – and not in time to prevent 2021 to mark one of the weakest of the century for production.

“Shale companies are on track to spend a little more money pumping oil next year, but most aren’t turning on the taps, even as prices rise above $80 a barrel,” he said. Robert Yawger, Director of Energy Futures of Mizuho Securities USA LLC. “Capital investment in U.S. oil plays this year is expected to hit the lowest levels since 2004.”

In fact, the United States has started increasing its crude imports in recent weeks.

Driven by imports, U.S. oil inventories, excluding those in the Strategic Petroleum Reserve, rose 2.3 million barrels last week. Shares soared 4.6 million barrels the previous week, according to the US Energy Information Administration. Weekly oil status report (WSPR).

The EIA’s WSPR for the week ended Oct. 8 is scheduled for release at 10 a.m. ET Thursday — a day later than usual due to a federal holiday on Monday.

In last week’s report, the EIA noted that total product supplied – the agency’s terminology for demand – averaged 20.7 million bpd over the past four weeks, in up 16% over the same period last year. During this period, motor gasoline consumption averaged 9.2 million bpd, up 6%, while distillate fuel demand averaged 4.1 million bpd. d, up 16%. Kerosene consumption increased by 64% to 1.5 million bpd.

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Felix J. Dixon