Global crude oil demand is expected to exceed global oil production for the sixth quarter in a row before supply and demand finds a relative balance in the first quarter of 2022, likely giving rise to limited upward price pressure in the coming months, the US Energy Information Administration said Dec. 7 in its latest Short-Term Energy Outlook.
With demand outpacing supply since Q3 2020, global petroleum stock withdrawals have averaged 1.7 million b/d, contributing to a rally in crude oil prices, the EIA said. But the agency expects stock draws to slow to 900,000 b/d in Q4 2021 and for global oil stocks to rise through much of 2022 as production is forecast to increase faster than global demand during that period.
"These stock builds should contribute to downward pressure on crude oil prices, and our Brent forecast averages $71/b in 2Q22, $70/b in 3Q22, and $67/b in 4Q22," the EIA said.
It added that "growth in production from OPEC+, of US tight oil, and from other non-OPEC countries will outpace slowing growth in global oil consumption, especially in light of renewed concerns about COVID-19 variants."
The agency cut its Brent crude spot price estimate for 2021 by 99 cents/b to $70.60/b, while lowering its full-year 2022 estimate by $1.86/b to $70.05/b. Similarly, the EIA cut its 2021 estimate for WTI crude prices by $1.15/b to $67.87/b and expects prices to fall further in 2022 to average $66.42/b, down $1.86/b from the prior month's estimate.
The EIA cautioned the omicron variant of the coronavirus added a great deal of uncertainty to projections for future energy consumption around the world.
A recent slip in crude oil spot prices from highs above $80/b was prompted by the emergence of the omicron variant as the market responded to risk that oil demand could dampen in the near term.
"It is not yet clear how omicron will affect oil markets and the broader economy," the EIA said. "One of the most likely markets to be affected is jet fuel, and some flights have already been canceled because of the variant."
The agency lowered by 620,000 b/d to 96.91 million b/d its global oil demand estimate for 2021 and cut by 420,000 b/d to 100.46 million b/d its global demand estimate for 2022.
It attributed those downward revisions in part due to recently announced travel restrictions. The agency added 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."
Relief at the pump
As crude oil prices are set to come down, the agency's projections for US regular gasoline prices were mostly unchanged. The EIA maintained its 2021 estimate at $3.00/gal, and edged down its 2022 estimate by 3 cents to $2.88/gal.
Averaging $3.39/gal in November, US regular gasoline prices were at their highest level since September 2014. But EIA expects some relief at the pump to be forthcoming, forecasting retail gasoline prices will average $3.13/gal in December before falling to $3.01/gal in January.
"Lower demand, combined with increased refinery production," as well as "market expectations that responses to the omicron variant could reduce demand" were among factors playing into the expected price decline in 2022.
The agency trimmed its 2022 outlook for US oil production by 50,000 b/d to 11.85 million b/d, up from an expected 2021 average of 11.18 million b/d.
While US oil production is forecast to see month-on-month increases through most of 2022, it will not reach the 12.8 million b/d monthly averages seen in and prior to March 2020 before the pandemic hit, according to the EIA.