IEA sees global oil demand rebounding after COVID-hit Q3
Global oil demand is set to rebound next month from the recent impact of the delta variant of COVID-19, with consumption in oil markets set to tighten before year-end if Iran remains under sanctions, the International Energy Agency said Sept. 14.
With a surge in activity restrictions in a number of countries since July to curb rising COVID-19 infections, the IEA revised down its third-quarter global oil demand estimate by 200,000 b/d in its latest monthly oil markets report.
Despite weaker Q3 demand, the IEA said it is now more optimistic over COVID-19 news due to progress in vaccine manufacturing and inoculations, and less restrictive social distancing measures in many countries.
“Already signs are emerging of COVID cases abating with demand now expected to rebound by a sharp 1.6 million b/d in October, and continuing to grow until end-year,” the IEA said. “… Strong pent-up demand and continued progress in vaccination programs should underpin a robust rebound from Q4 2021.”
The IEA raised its 2022 oil demand estimate by 100,000 b/d to 99.4 million b/d and now sees global oil demand rising by 5.2 million b/d this year and by 3.2 million b/d in 2022, a 105,000 b/d cut and an 85,000 b/d increase, respectively.
The report comes a day after OPEC hiked its own forecast of 2022 global demand growth to 4.15 million b/d, up from 3.28 million b/d, projecting world oil demand to exceed pre-pandemic levels in 2022.
As a result of high natural gas and LNG prices in Europe and Asia, the IEA said it also sees several countries using more fuel oil or crude oil for power generation in the coming months.
With likely gas-to-oil switching focused in the Middle Eastern countries, Indonesia, Pakistan, and Bangladesh, the IEA said it expects 150,000 b/d to 200,00 b/d of additional fuel/crude demand from Q3 2021 to Q1 2022.
By the end of 2021, the IEA sees oil consumption reaching 99.1 million b/d, around 4.7 million b/d higher than at the end of 2020, but still 1.1 million b/d lower than at the end of 2019.
Overall, the IEA sees global oil product demand returning to 2019 levels in 2022, despite a 1.3 million b/d lag in jet and kerosene demand from 2019 levels.
With up to 1.7 million b/d of oil production shut-in along the Gulf Coast at the end of August as a result of Hurricane Ida and the delayed restart of a number of offshore platforms, the IEA said it sees the biggest impact from the storm on supply will be seen in September.
Ida, the worst storm to hit the Gulf Coast region since Hurricanes Katrina and Rita in 2005, could result in a total crude supply loss of up to 30 million barrels, the IEA said, given the current extended shutdowns.
With OPEC+ raising its crude output monthly by 400,000 b/d from August to unwind the remainder of its COVID-related cuts, the IEA said it sees the oil market shifting closer to balance starting from October.
OPEC+ oil production is projected to ramp up by 2.4 million b/d between August and the end of 2021. At the same time, the IEA estimates output from non-OPEC+ is due to rise by roughly 400,00 b/d.
“Even so, it is only by early 2022 that supply will be high enough to allow oil stocks to be replenished,” the IEA said.
Looking ahead, the easing of supply outages means OPEC+ producers could by pumping 1.4 million b/d above the call on the bloc’s crude in Q1 2022, the IEA said, assuming Iran remains under sanctions. By Q2 next year, OPEC+ crude oil output could rise to 2.4 million b/d above the call, it said.
On stocks, the IEA said preliminary data for the US, Europe and Japan show total OECD industry stocks fell by a further 31.1 million barrels in August, while crude oil held in short-term floating storage decreased by 20.3 million barrels to 101.7 million barrels.
“If confirmed by more definitive data, the draws in August would put OECD industry stocks at an exceptionally tight level below the lower bound of their five-year range,” the IEA said.
In July, the IEA said industry stocks drew by 34.4 million barrels to stand at 2.85 billion barrels, 185.7 million barrels lower than the 2016-2020 average and 120.3 million barrels below the pre-COVID five-year average.
In terms of forward demand, OECD industry stocks covered 62.3 days at end-July, a decrease of 0.8 days on the month and 2.7 days lower than the 2016-2020 five-year average.