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The International Energy Agency on Thursday said oil demand abruptly reversed course in July and is set to proceed more slowly due to the spread of Covid-19 Delta variant, but oil producers’ group stuck to its earlier prediction of a strong recovery in 2021 and further growth next year.
In a sharp contrast to Opec’s upbeat view, the Paris-based IEA drastically downgraded demand surge for the second half of 2021 as new Covid-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use.
“We now estimate that demand fell in July as the rapid spread of the Delta variant undermined deliveries in China, Indonesia and other parts of Asia,” it said in its monthly oil report.
The IEA put the demand slump last month at 120,000 barrels per day (bpd) and predicted growth would be half a million bpd lower in the second half of the year compared to its estimate last month, noting some changes were due to revisions in data.
“But the scale could tilt back to surplus in 2022 if Opec+ continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices,” it said.
In a monthly report, Opec said oil demand will rise by 5.95 million barrels per day (bpd) this year, or 6.6 per cent, unchanged from last month’s forecast. In 2022, fuel use will expand by 3.28 million bpd as predicted early.
Opec also raised its forecast of supply from rivals, including US shale producers, next year, a potential headwind for the efforts of the group and allies to balance the market.
Oil was trading above $71 a barrel after the report was released. Prices have risen to pre-pandemic highs above $77 this year, boosted by economic recovery hopes and Opec+ supply cuts, although concern about the Delta variant has weighed.
The oil producers group raised its forecast of 2021 world economic growth to 5.6 per cent from 5.5 per cent assuming the impact of the pandemic will be contained, although it warned of “significant uncertainties.” The outlook for 2022 was raised by the same increment to 4.2 per cent.
“The global economy continues to recover,” said the report. “However, numerous challenges remain that could easily dampen this momentum. In particular, Covid-19-related developments will need close monitoring.”
An output deal reached by the Opec+ alliance - consisting of the Organisation of the Petroleum Exporting Countries and others such as Russia - last month would restore market balance in the near term, the IEA said.
As per the deal, Opec and allies group, which had introduced output curbs to support prices and ease oversupply, would boost output by 400,000 bpd a month starting in August until the rest of a 5.8 million bpd cut is phased out.
The Opec report showed the group’s output rose in July by 640,000 bpd to 26.66 million bpd, as Saudi Arabia unwound the rest of a voluntary supply cut it had made to support the market.
The report forecast a 2.9 million bpd rise in supply from Opec’s rivals in 2022, 840,000 bpd more than seen last month, partly because of the decision by Opec+ to pump more and as higher prices spur investment.
Opec sees output of US tight oil, another term for shale, rising by 560,000 bpd in 2022, up 60,000 bpd from last month’s forecast, after a contraction this year.
—issacjohn@khaleejtimes.com
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