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Demand outlooks support global oil prices

Over the past week, oil prices were supported by favorable demand outlooks and bullish statistics from the US Energy Information Administration. Last week on Wednesday, prices rose to a six-week high as the Organization for the Petroleum Exporting Countries and the International Energy Agency predicted a strong rebound in global oil demand, as another storm threatened to cause disruptions to the oil industry in the US Gulf area. The overall rally in global energy prices also supported the price of oil last week.

Oil ended the week on the rise despite a risk-off market on Friday, with Brent trading above $75 a barrel and West Texas Intermediate near $72 a barrel. Oil is now close to its highest level since the end of July, before prices started sliding in August on concerns about demand amid the surge of the delta COVID-19 variant.

Last week, key forecasting agencies — OPEC and the IEA — presented updated estimates for demand, which allows traders to form a balanced view on the prospects of the market until the end of 2021 and 2022. Against the rise of COVID-19 cases in Asia in August, the market was eagerly awaiting updated estimates, fearing a slowdown in demand. However, the picture has not changed significantly. The agencies limited themselves to cosmetic adjustments, especially for this year, and generally maintained an optimistic outlook of the market.

The IEA Monthly Oil Market Report, released on Tuesday, sees oil demand growing worldwide by 5.2 million barrels per day in 2021 and by 3.2 million bpd next year, bringing average consumption in 2022 to 99.4 million bpd. The IEA slightly changed the demand growth outlook for 2022 compared to its previous forecast, unlike OPEC, which raised next year’s demand growth by almost 1 million bpd to average 100.8 million bpd, up by 4.2 million bpd from 2021, and hoping to exceed pre-pandemic levels.

OPEC attributed the change in outlook to a higher pace of demand recovery and stable economic prospects in all regions. For this year, OPEC’s Monthly Oil Market Report keeps total global oil demand unchanged at 96.7 million bpd for the whole of 2021.

Oil prices also received support last week on bullish statistics from the EIA, which reported a 6.4-million-barrel draw in crude oil inventories and another draw in fuel inventories. This was a key positive factor, which was won back in advance, as American Petroleum Institute data on Tuesday already foreshadowed similar results.

These bullish factors led to a decrease in tensions in the oil market and pushed prices higher for four consecutive weeks.

For now, the outlook for the oil market is in a favorable growth zone. Despite the occasional outbreak of COVID-19 clusters in some countries, the overall positive dynamic in global demand for crude oil remains. The risk that the next wave of the pandemic will slow down the growth of the world economy is now insignificant. In addition, the gradual recovery of global economies and the onset of winter in the Northern Hemisphere will contribute to demand growth for oil and petroleum products, which will push oil prices up.

However, the support factor from the hurricanes is gradually coming to end, and the restoration of the capacity of the Gulf of Mexico is expected in the next week or two. Still, oil price inertia on a positive sentiment may grow further, but the Federal Reserve meeting is approaching, where the market is waiting for a substantive start of discussion on curtailing the asset repurchase program this year. In addition, the risks of growth in shale production in the US and fears about the Chinese economy may put pressure on the oil market and create risks of transition to the supply surplus phase in the next couple of quarters. Any crisis in this aspect can easily lead to a reduction in oil prices, as interest in oil may weaken.

Meanwhile, the market is awaiting the data of exploration and production activities in the US after Hurricane Ida and its impact during the opening trading for the next week.

• Dr. Namat Al-Soof is an Iraqi oil expert with long experience in upstream and market analysis. He held senior analyst positions at OPEC, IEF in Riyadh, and OPEC FUND for International Development. Currently, he is a consultant to a number of companies in the oil industry.
Source: Arab News

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