OIL AND GAS

2022 TO SEE RISE IN GLOBAL OIL DEMAND AS ECONOMY REBOUNDS

 

 

Global oil demand is expected to grow by around 4.2 million barrels per day (bpd) in 2022, even as the global economic recovery hits a roadblock this year due to COVID-19’s Delta variant.

The Organization of the Petroleum Exporting Countries’ (OPEC) latest monthly report notes both developed and developing economies will likely post an impressive economic growth, which would ensure that oil demand will reach 100.8 million bpd, exceeding pre-pandemic levels.

“As vaccination rates rise, the COVID-19 pandemic is expected to be better managed and economic activities and mobility will firmly return to pre-COVID-19 levels,” OPEC said. "The revisions are based in both the Organization for Economic Co-operation and Development (OECD) and non-OECD regions, with steady economic developments expected to support the partially delayed recovery in oil demand in various sectors.”

The US Energy Department also concluded in its short-term energy outlook in September that global oil demand will exceed 101 million bpd by 2022, amid an economic rebound.

OPEC revised OECD oil demand outlook to 1.8 million bpd in 2022, a 300,000 bpd increase compared to its previous projection, while non-OECD region oil demand will rise by 2.3 million bpd, year on year, (1.7 million previously), supported by steady economic activities in the main economies, particularly China, India and Other Asia.

“In 2022, China’s oil demand is anticipated to increase y-o-y, supported by solid economic growth forecasts,” OPEC noted, adding that transportation and industrial sectors are projected to rise the most with support coming from an increase in vehicle miles driven, a rise in passenger car sales and a steady industrial sector. Other fuels including gasoline and diesel are also expected to see an increase in demand, while a healthy petrochemical sector is expected to lend strong support to light distillates consumption next year.

In India, another key growth market, oil demand is expected to rise, year on year, as total consumption exceeds pre-pandemic levels on an annualised basis.

“COVID-19 containment measures are projected to improve, backed by rising vaccination rates, natural immunity and improved treatment of COVID-19. Economic activity is projected to support demand for refined products, led by transportation fuels, mainly gasoline,” OPEC noted.

“Support will be driven by rising mobility and increased use of private vehicles. Diesel will gain strength in 2022, supported by steady developments in the industrial, construction and agriculture sectors.”

On the flip side, supply is not growing as robustly. OPEC expects non-OPEC supply to reach 63.8 million, bpd, noting declines in the US liquids supply due to disruptions in production caused by Hurricane Ida.

Indeed, Hurricane Ida has a more lasting impact than the market had anticipated. In addition, as some oil production capacity remains shut in early September, prices are rising on supply not being restored and therefore not reaching refineries, which have restarted operations quicker than producers.

The threat of more disruptions from extreme weather is also a cause of concern for producers and a reason for traders to add price premiums, as the new Tropical Storm Nicholas in the Gulf of Mexico could turn into a hurricane and hit Texas in the coming days.

Although latest update on Hurricane Ida showed US Gulf of Mexico production had recovered about 320,000 bpd, this could soon be turned around if Nicholas becomes a hurricane.

Oil supply is expected to grow in Canada, Russia, China, Brazil and Norway, but decline in the UK, Colombia, Indonesia, and Egypt.

Rising demand and muted supply suggests that inventory levels are tight. OPEC data shows inventories are 122 million barrels below the latest five-year average and 57.2 million barrels lower than the 2015-2109 average.

One key factor that analysts are keeping an eye on is inflation, which has been at elevated levels this year in many developed markets and could crimp growth, especially as the US dollar remains strong compared to many emerging market currencies.

In September, OPEC and non-OPEC energy ministers agreed to continue their strategy of slowly releasing new production into the market on the agreed terms.

“The meeting welcomed the positive performance of participating countries in the Declaration of Cooperation (DoC),” OPEC noted. “Overall conformity to the production adjustments was 110% in July including Mexico (109% without Mexico), reinforcing the trend of high conformity by participating countries.”