Global oil demand is set to surpass pre-pandemic levels in 2022 as fears over the latest coronavirus wave subside, creating the potential for another "volatile" year of oil prices, the International Energy Agency said Jan. 19.
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In its monthly oil market report, the IEA raised its demand estimates by 200,000 b/d for both 2021 and 2022, to reflect clear signs that impact on economic activity and oil demand from the omicron variant remained "relatively subdued."
World oil demand was seen rising by 5.5 million b/d in 2021 and by 3.3 million b/d in 2022, the IEA said, surpassing its pre-pandemic levels by 200,000 b/d to 99.7 million b/d.
During the fourth quarter of 2021, the IEA said global demand "defied expectations" rising by 1.1 million b/d to 99 million b/d, an upward revision of 345,000 b/d compared to its previous report.
"If demand continues to grow strongly or supply disappoints, the low level of stocks and shrinking spare capacity mean that oil markets could be in for another volatile year in 2022." the IEA said.
The IEA's latest report comes as oil prices hit fresh seven-year highs at over $88/b, supported by a growing consensus that oil demand and supply balances are tightening this year, with some market watchers predicting Brent futures will hit $100/b later in the year.
On the supply side, the IEA said it now sees OPEC+ spare capacity shrinking to 2.6 million b/d later this year from around 5 million b/d currently if the producer group continues to unwind its supply cuts and Iran remains under sanctions.
The IEA said it still expects OPEC+ to pump 1.5 million b/d above the call for its crude in first quarter of 2022, if it continues to unwind its COVID cuts. By the second quarter, the IEA sees OPEC+ crude output rising to 1.7 million b/d above the call.
The IEA trimmed its forecast for non-OPEC oil supply by 100,000 b/d to 66.5 million b/d, however, to reflect constraints on Russian oil production growth capacity.
Russia oil supplies for 2022 have been revised down by 130,000 b/d, with crude oil capacity pegged around 10.2 million b/d, to reflect the latest official targets, the IEA said.
Expected non-OPEC oil supply growth in 2022 was unchanged since last month's report, however, at 1.8 million b/d.
US oil output is forecast to rise by 1 million b/d on average, to 17.7 million b/d, as operators respond to higher prices. Additionally, Ecuador, Libya and Nigeria were already ramping back up.
Overall, world oil supply in 2022 has the potential for a Saudi-driven gain of 6.2 million b/d if OPEC+ fully unwinds its cuts, the IEA estimated, compared with a 1.5 million b/d rise in 2021.
Sharp stock draws
On stocks, the IEA said OECD industry stocks declined to seven-year lows in November, falling 6.1 million barrels month on month and 354 million barrels year on year, to 2.76 billion barrels.
"Data suggest that 2022 is starting off with global oil inventories well below pre-pandemic levels. A growing discrepancy between observed and calculated stock changes suggests demand could be higher or supply lower than reported or assumed," the IEA said.
Preliminary data for December showed that OECD stocks plunged by a further 45.2 million barrels, 35% more than the normal seasonal decline for the month.