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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Why $80 Oil Won't Destroy Demand

  • Global oil demand is on course to recover to pre-pandemic levels by the end of the year
  • U.S. demand is leading the way, with petroleum product demand approaching all-time highs this summer
  • The rollout of vaccines across Asia is only going to speed up the  recovery of global oil demand

The $80 per barrel threshold may not be the limit for oil prices in the coming months as global demand recovery continues and record natural gas prices spur more demand for oil products for power generation and heating. 

Despite the still lingering concerns over the Delta variant in many countries, mobility in developed economies continues to narrow the gap with 2019 levels amid higher vaccination rates and strong economic recovery. Although developing economies in South and Southeast Asia are still imposing intermittent localized lockdowns, oil demand globally continues to grow and is set to reach pre-pandemic levels within a few months.  

So, 2019 was not the year of peak oil demand, as some analysts predicted in the first half of 2020 when COVID had most of the world on lockdown.  

In addition, the skyrocketing natural gas and power prices are boosting the overall energy market rally and are set to result in more oil product demand in a gas-to-oil switch, especially in parts of Asia. 

On Friday, the U.S. benchmark, WTI Crude, broke above $80 per barrel for the first time since 2014 as the world scrambles for energy supplies for the winter. Early on Monday, oil continued to rise in Asian trade, with Brent Crude topping $84 and WTI at $82. 

The rally in prices is not only the result of the energy supply crisis in Europe and Asia. 

Global oil demand continues to recover at a healthy pace, although the pandemic is still with us, Ed Crooks, Wood Mackenzie’s Vice-Chair, Americas, notes

The pandemic is still a factor on the global oil market, but “its impact on the world economy and on energy demand is fading,” Crooks wrote in a commentary on Friday. 

WoodMac - like many other consultancies, analysts, and oil majors - expects global demand worldwide, even at its uneven pace across regions, to reach pre-COVID levels by the third quarter of 2022. 

This quarter, global oil demand is forecast to grow to around 99 million barrels per day (bpd), up from 97 million bpd in the third quarter, when demand rose by 6 percent compared to the third quarter of 2020, according to Wood Mackenzie.

Oil demand globally is recovering from the summer Delta variant spike faster than some observers had expected. Then, soaring prices of natural gas and coal in Europe and Asia are forcing more gas-to-oil switching at power generating units globally, further pushing up demand for oil. 

Many analysts and oil companies see global oil demand returning to the pre-crisis levels of 2019 as early as the start of next year, if not earlier, by the end of 2021. 

Oil demand in the United States is at the forefront of recovery, with petroleum product demand over the summer approaching its all-time highs at about 21 million bpd, Wood Mackenzie’s Crooks notes. 

“Mobility data show that even as the Delta variant of Covid-19 caused a surge in US infections, people kept driving,” he added. 

The rollout of vaccines in developing economies in Asia will likely ease the pressure for intermittent lockdowns in the region. The countries with slower demand recovery than the U.S. can be expected to catch up, according to Suzanne Danforth, Wood Mackenzie’s Americas markets lead for downstream oil. 

“The rebound in high-income countries with high vaccination rates is giving an indication of what other countries can look forward to,” WoodMac says. 

As demand recovery continues, the supply side is also putting upward pressure on oil prices, after OPEC+ decided last week to keep plans for easing the cuts unchanged, despite calls for more supply from consuming countries, including the United States. OPEC+ will increase supply in November by 400,000 bpd - the minimum the market was expecting ahead of the meeting.  

Tightening oil and other energy commodity markets have rekindled speculation about how high oil prices could go and whether they could reach $100 a barrel, especially if this winter in the northern hemisphere turns out colder than usual. 

The $80 a barrel threshold is typically seen as the trigger of demand destruction, but with tight natural gas and coal markets globally, this winter’s demand-destruction price point could be higher. 

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Lisha on October 11 2021 said:
    yes it will destroy demand
  • King Rocker on October 12 2021 said:
    Of course it won't kill demand, it's extremely inflexible. It WILL move it ever quicker to other sources, though.
    My EV says hi to all gas stations passing by since over 1 year!!
  • Mamdouh Salameh on October 12 2021 said:
    The rally in crude oil prices is being driven by a robust economy and declining global oil inventories with the global economy coming on top of the pandemic. Europe’s energy crisis has enhanced oil demand by an estimated 500,000-750,000 barrels a day (b/d) through switching from natural gas to oil because global shortages of natural gas and prohibitive prices.

    Global oil demand is already back to 2019 levels of 100 million barrels a day (mbd) and could exceed it before the end of this year.

    Brent crude is expected to hit $85 a barrel any minute now and could even touch $90 before the end of the year.

    Moreover, an $80 oil won’t destroy demand because a fair price for Brent crude ranges from $100-$110. Such a price is good for the global economy since it stimulates the three ingredients that make up the economy, namely, global investments, the global oil industry and the economies of the oil-producing countries.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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