The last two weeks saw three major energy organizations release their outlooks for the immediate future of oil demand. While sometimes these outlooks largely align in their projections on demand, this time, as sometimes happens, they diverged.
The three organizations are OPEC, the International Energy Agency, and the U.S. Energy Information Administration.
OPEC was first. The cartel released its latest Monthly Oil Market Report last week, expecting a mild effect of the Omicron variant of the coronavirus on oil demand and therefore leaving its demand projections for this year and next unchanged. This stands at a growth of 4.2 million bpd in 2022 from this year.
The group cited “improved COVID-19 management and rising vaccination rates, enabling economic activity and mobility to return to pre-pandemic levels, supporting transportation fuels in particular,” as factors that would determine this growth in oil demand.
Meanwhile, the International Energy Agency said in its own Oil Market Report that the Omicron variant would slow down demand growth, adding, however, that the effect would be temporary. The agency also revised slightly down its demand projections for 2021 and 2022, by 100,000 bpd, to a growth of, respectively, 5.4 million bpd this year and 3.3 million bpd next year.
The difference between OPEC’s 4.5-million-bpd demand growth projection and the IEA’s 3.3 million bpd is quite understandable. OPEC has a vested interest in higher demand. The IEA, which has lately become more of a champion for the energy transition than an impartial energy agency, is skeptical about the future of oil demand. These biases are bound to affect calculations.
The Energy Information Administration, however, served perhaps the biggest surprise in oil demand outlooks. In the latest edition of its Short-Term Energy Outlook, the authority forecast that next year, oil demand will increase by 3.4 million barrels daily. This was a downward revision of as many as 420,000 bpd from last month’s STEO projections.
Despite the differences in exact expectations, the three organizations remain generally optimistic about oil demand, and this is perhaps what matters more than actual numbers, as appealing as these may be.
“The surge in new Covid-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is underway,” the IEA said in its OMR. “New containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous Covid waves, not least because of widespread vaccination campaigns. As a result, we expect demand for road transport fuels and petrochemical feedstocks to continue to post healthy growth.”
The EIA, for its part, noted that “The potential effects of the spread of this variant are uncertain, which introduces downside risks to the global oil consumption forecast, particularly for jet fuel,” adding that “The Omicron variant has introduced additional uncertainty into oil markets for the coming months, and this uncertainty is reflected in the recent increase in oil price volatility.”
And here’s OPEC’s comment on factors driving demand trends: “The expected market balance continues to be determined by the evolution of the COVID19 pandemic, as a key factor of uncertainty, but the successful joint efforts of the DoC continue to closely monitor all developments in a timely and vigilant manner, to be able to react to rapidly changing market circumstances.,”
In other words, while on the face of the three agencies disagree about where oil demand is going, they are in complete unison about what will drive it: the pandemic. Maybe 2022 will be the last year the pandemic remains the single most important factor for oil demand as some medical experts—and JP Morgan—have suggested the Omicron variant is much milder than previous ones.
By Irina Slav for Oilprice.com
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