Return to pre-pandemic oil demand not likely until 2023

Return to pre-pandemic oil demand not likely until 2023

Global oil balances appear to be strained due to supply shortages and higher demand, driven in part by the substitution of increasingly high natural gas.

However, the fundamentals suggest a slowdown and leveling of inventories, ending the sharp decline in inventories since mid-year and implying less support for oil prices for the next few months, although risks remain at the bottom. rise.

The United States has increased its crude inventories in recent weeks, reflecting the impact of Storm Ida is easing, although refineries are slow to return.

Demand growth in Asia, the United States and Western Europe in 2022 is expected to exceed pre-pandemic levels. For the rest of the world, a solid return to 2019 levels is not expected until 2023. Road traffic continues to drive the recovery in oil demand.

Crude oil prices resumed their rally as the market considered it unlikely that the US Department of Energy would release oil from the Strategic Petroleum Reserve or ban exports to facilitate supply. The resumption of oil production in the US Gulf of Mexico and the widening of the Brent-West Texas Intermediate spread should boost US crude oil exports in the coming weeks.

Global mobility was on average 8.1% lower than pre-pandemic levels in most of the world’s major oil users except China in the week to September 30, according to data from Google, as key economies continue to recover, further supporting oil prices, Platts reported. .

Refining margins have declined in the Atlantic Basin, due to the weak upper barrel with the end of the driving season and as higher natural gas prices have increased operating costs.

In Singapore, margins gained against Dubai, supported by a strong performance in the mid and bottom sections of the barrel amid low product flows from China.

The continued rise in natural gas prices in major trading hubs to record levels will remain a major factor in supporting oil prices in the weeks to come. Refiners fully exposed to gas prices will see their margins drop, pushing them towards 2020 levels and prompting some to reduce series.

A seasonal decline in global refinery throughput during the maintenance season could be slightly offset by additional demand for oil due to its substitution for natural gas, particularly in the electricity sector.

OPEC + reconfirmed its production adjustment plan to increase production by 400,000 barrels per day in November, according to a press release following the 21st OPEC and non-OPEC ministerial meeting.

Aramco’s adjustments to official selling prices for November freight loads of all grades were seen by observers to be in line with market expectations to account for the increased allocations. Price compensations against benchmarks were fairly billed to refiners. Reductions on lighter crudes to Asia were smaller than heavier ones due to improved naphtha cracks on favorable olefin margins and the seasonal reduction in oil combustion in the fourth quarter.

Supply chain bottlenecks can add additional pressure, and higher interest rates could discourage borrowing and injecting capital into upstream projects, prolonging the supply crisis medium term.

A faster recovery in oil demand will remain a decisive element in shaping the overall market outlook.

  • Mohammed Al-Shatti is a Kuwaiti oil analyst.

Disclaimer: The opinions expressed by the authors of this section are their own and do not necessarily reflect the views of Arab News

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