The surge in COVID cases is set to temporarily slow the recovery in global oil demand, but the impact of the Omicron variant will likely be more muted than previous waves and will not upend the current demand recovery, the International Energy Agency (IEA) said on Tuesday.
The recent spike in COVID cases is set to slow demand recovery in the coming weeks, with jet fuel demand most affected, the IEA said in its latest Oil Market Report for December.
Due to new restrictions on international travel, the IEA revised down slightly—by 100,000 barrels per day (bpd)—its demand growth forecast for both this year and next. In 2021, the IEA expects oil demand to rise by 5.4 million bpd compared to 2020, and another 3.3 million bpd in 2022, reaching the pre-COVID levels of 99.5 million bpd.
This month’s demand growth projections are slightly down from the forecasts in the November report, in which the IEA expected oil demand growth at 5.5 million bpd this year and 3.4 million bpd next year.
Despite the downward revision, the IEA doesn’t expect a massive drop in demand of the magnitude the oil market seems to have priced in at the end of November when first reports of the new variant emerged.
“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 report today.
“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 agency added. Related: Oil Prices Rise As Omicron Fears Fade
On Monday, OPEC said in its monthly report that the impact of the Omicron COVID variant on global oil demand would be mild and short-lived, and left its 2021 and 2022 demand growth forecasts unchanged.
The IEA today said that global oil production is set to outpace demand from as soon as this month, led by growth in the U.S. and OPEC+ countries.
“Much needed relief for tight markets is on the way, with world oil supply set to overtake demand starting this month,” the IEA noted.
If OPEC+ continues to unwind its cuts, the first quarter of 2022 will see a surplus of 1.7 million bpd, and the oversupply could grow to 2 million bpd in the second quarter of 2022, according to the agency.
“If that were to happen, 2022 could indeed shape up to be more comfortable,” the IEA said.
By Tsvetana Paraskova for Oilprice.com
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