Oil demand is set to jump by half a million barrels per day (bpd) as the power sector and heavy industries switch from other more expensive sources of energy, the International Energy Agency (IEA) said on Thursday.
The Paris-based agency, which advises governments on energy policy, said it now expects global oil demand for this year and 2022 to be higher than in its previous forecast. However, the major oil producers said Opec+ have done a remarkable job to stabilise the market in the wake of Covid-19 pandemic.
“Global oil demand is now forecast to rise to pre-pandemic levels to 96.3 million barrels per day this year, up by 5.5 million from its previous report. It will increase by 3.3 million bpd next year,” the IEA said in its monthly review of the oil market.
Oil prices rose by about one per cent on Thursday after the IEA report forecasting higher demand in coming months. Brent crude futures gained 87 cents, or 1.1 per cent, to $84.05 a barrel by 1010GMT after falling 0.3 per cent on Wednesday. US West Texas Intermediate (WTI) crude futures climbed 77 cents, or one per cent, to $81.21, more than recouping the previous day’s 0.3 per cent decline.
Spare production to shrink
The IEA said world oil supply is expected to rise sharply in October as US output recovers from the fallout of Hurricane Ida, which severely disrupted operations in the Gulf Coast in late August. It made upward revisions to its demand forecasts for this year and 2022, increasing them by 170,000bpd and 210,000bpd, respectively.
The IEA further estimated that producer group Opec+ is set to pump 700,000bpd below the estimated demand for its crude in the fourth quarter of this year, meaning demand will outpace supply at least until the end of 2021. It warned that spare production capacity from the group will shrink sharply from nine million bpd in the first quarter of this year to only four million bpd in the second quarter of 2022.
“Oil prices are scaling multi-year highs as a shortage of natural gas, LNG and coal boosts demand for oil, which could keep the market in deficit through at least the end of the year,” the IEA said.
Investment in oil industry
Suhail bin Mohammed Faraj Faris Al Mazrouei, UAE Minister of Energy and Infrastructure, said the global oil market is at risk of the sort of volatility the gas market is currently witnessing unless proper investment is made.
Asked whether the major oil producers would be ready to increase its production to cool rising oil prices, the minister said that Opec+ producers have the capacity to do so but do not want to overdo it.
“The UAE had spare oil production capacity, but it is important to maintain balance in the market as demand for energy and especially natural gas is peaking,” Al Mazrouei said on the sidelines of an energy in Moscow forum on Thursday.
Market uncertainty to continue
Opec secretary-general Mohammad Barkindo said the oil market continues to face uncertainties stemming from the Covid-19 pandemic.
Regarding how Covid-19 is creating uncertainty Barkindo pointed to “responses by the governments as the various variants, mutations emerge and how the world is able to upscale the vaccination rates in particular in developing countries”.
“The market is taking its course in accordance with supply and demand fundamentals. But we must admit there are external factors that are influencing the evolution of the market,” he said.
Russian deputy prime minister Alexander Novak said the global oil market is expected to recover fully by the end of next year.
Speaking at a panel with the energy ministers from Saudi Arabia and the UAE, as well as Mohammad Barkindo, Novak said that current oil prices reflect the current market situation with no volatility expected.
Opec+ sticks to its agreement
Saudi energy minister Prince Abdulaziz bin Salman said the Opec+ group of oil producing nations stuck to its previous agreement on raising output last week as it wants to gradually reduce excess oil production capacity left after the pandemic.
He dismissed calls for speedier oil output increases, saying its efforts with allies were enough and protecting the oil market from the wild price swings seen in natural gas and coal markets.
“We want to make sure that we reduce those excess capacities that we have developed as a result of Covid. We want to do it in a gradual, phased-in approach and we believe that we will have a challenging year in 2022,” the minister told the Moscow forum.
He said Opec+ would be adding 400,000 barrels per day (bpd) in November, and then again in the following months. He said OECD oil inventories were on track to normalise at the end of this year, 2022 was looking “a bit of a challenging year”.
“What we see in the oil market today is an incremental (price) increase of 29 per cent, vis-a-vis 500 per cent increases in (natural) gas prices, 300 per cent increases in coal prices, 200 per cent increases in NGLs (natural gas liquids). Gas markets, coal markets, other sources of energy need a regulator,” Prince Abdulaziz said.
— With inputs from Reuters and AFP
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