An acute shortage in natural gas and coal supplies triggering a massive switch to oil products, along with improving mobility trends, has boosted the global oil demand outlook, but supply could catch up early 2022 should OPEC+ stick to its plan to bring crude back online, the International Energy Agency said Oct. 14.
The IEA raised its global oil demand estimate by 170,000 b/d to 96.3 million b/d in 2021 and by 210,000 b/d in 2022 to post-COVID-19 levels of 99.6 million b/d in its latest monthly oil market report Oct. 14.
The current energy crunch could boost demand by 500,000 b/d compared with normal conditions through to the first quarter of 2022, the IEA said. It added that global gasoline demand is now at just 2% below pre-COVID-19 levels compared with a deficit in excess of 10% at the start of the year.
While the Paris-based agency upgraded oil demand growth forecasts to 5.5 million b/d for this year and to 3.3 million b/d for 2022, it warned that higher oil prices, if sustained, could lead to demand erosion.
"The higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in economic recovery," the report said.
Supply plays catch-up
The IEA also sees a strong recovery in global oil supply as OPEC+ continues to ease production cuts, the US bounces back from the longer-than-expected damage inflicted by Hurricane Ida, and the maintenance season draws to a close.
The agency said that from September through end-2021, global output is set to rise 2.7 million b/d with OPEC+ accounting for 1.5 million b/d. This would still leave the OPEC + crude supply 700,000 b/d short of the global requirement in the fourth quarter.
However, the IEA said that the picture could change quickly, lending support to OPEC+ sticking to its current plan of bringing back 400,000 b/d each month.
"If OPEC+ continues to unwind its cuts, the bloc could pump 800,000 b/d above the call on its crude in Q1 2022, assuming Iran remains under sanctions... by Q2 2022, OPEC+ crude oil output could rise to 2.1 million b/d above the call," the IEA said.
As such, these possible stock builds in 2022 could offset the extended period of inventory draws that are expected to last until the end of 2021, the IEA added.
Spare capacity risk
The IEA also drew attention to the lack of investment in energy and sounded the alarm over dwindling effective spare capacity as OPEC+ pumps more.
The effective spare capacity could fall below 4 million b/d by the middle of 2022 and be concentrated in only a few Middle Eastern countries, the agency warned, even though supply is expected to exceed demand by then.
"Shrinking global spare capacity underscores the need for increased investments to meet demand further down the road," the IEA said.
"A surge in spending on clean energy transitions provides the way forward, but this needs to happen quickly or global energy markets will face a bumpy road ahead," it added.