Year of global oil return portends more strength in 2022

The sun is seen behind a crude oil pump jack in the Permian Basin of Loving County, Texas, the United States, November 22, 2019. REUTERS / Angus Mordant / File Photo

NEW YORK, Dec.23 (Reuters) – Global demand for oil exploded in 2021 as the world began to recover from the coronavirus pandemic, and aggregate global consumption could potentially hit a new high in 2022 – despite efforts to reduce the consumption of fossil fuels to mitigate climate change.

Gasoline and diesel consumption increased this year as consumers resumed travel and business activity picked up. For 2022, crude consumption is expected to reach 99.53 million barrels per day (bpd), up from 96.2 million bpd this year, according to the International Energy Agency. This would be a hair less than the daily consumption of 99.55 million barrels in 2019.

This will put pressure on OPEC and the U.S. shale industry to meet demand – after a year in which major producers were surprised by the rebound in activity which exceeded supply and led to tight stocks. in the whole world. Many OPEC countries have struggled to ramp up production, while the US shale industry faces investor demands to stay on track with spending.

After starting the year at $ 52 a barrel, Brent crude climbed to around $ 86 a barrel before running out of steam at the end of the year. Forecasters say prices could resume their upward trajectory in 2022, unless supply increases more than expected. Bank of America researchers estimate that Brent will average $ 85 per barrel in 2022, due to low inventories and lack of spare capacity.

The unknown is the variant of the Omicron coronavirus, as many countries have reimposed travel restrictions that will hurt the aviation industry and consumption.

“If this is another wave like the ones we’ve seen before, it will negatively impact economic growth in the first quarter of 2022,” said Damien Courvalin, head of energy research at Goldman Sachs. “But if there is a subsequent recovery, demand for oil, which briefly touched pre-COVID levels in early November, would then hit new highs for most of 2022.”

The 2021 rebound surprised suppliers, exacerbating tensions between major producing countries and the world’s largest consumers like the United States, China and India. With gasoline prices rising sharply at the start of the year, US President Joe Biden called on the Organization of the Petroleum Exporting Countries and its allies, known as OPEC +, to increase overall production after limited supply for months. (GRAPHIC: rebound in demand)

However, OPEC countries have struggled to increase production due to underinvestment, as Reuters data showed the group was too close to its production targets in November. Read more

Likewise, the US shale industry has not responded to the price hike as it had before, yielding to investor pressure to restrain spending. Global U.S. production averaged 11.2 million b / d in 2021, compared to a record high of nearly 13 million b / d at the end of 2019, according to the US Energy Information Administration.

Canada, Norway, Guyana and Brazil are expected to increase their supply over the coming year, said Claudio Galimberti, senior vice president of analysis at Rystad Energy. U.S. oil production is expected to average 11.9 million barrels per day by 2022, according to the EIA.

OMICRON’S UNCERTAINTY

Coronavirus cases are increasing due to the highly contagious variant of Omicron, and new outbreaks could slow the recovery in major economies. The IEA and others have lowered their expectations slightly, with the IEA cutting its forecast for 2021 and 2022 by 100,000 bpd on average to account for the drop in air travel.

“Even 5% of the unvaccinated population can create a crisis,” said Fereidun Fesharaki, chairman of the consultancy firm FGE. “The idea that you can have 70%, 80% or 90% immunized and be OK is being questioned.”

However, there is still little evidence that Omicron has had a dramatic effect on demand. Fuel stocks at the Amsterdam-Rotterdam-Antwerp (ARA) hub, a key European oil and gas transport location, have fallen in the most recent week – a signal of stable consumption. Fuel prices are the highest on record in Britain, data from the Fuel Watch unit of car services company RAC showed.

In Asia, profit margins at refineries to produce gasoline have cooled in recent weeks amid concerns over Omicron demand, but the general expectation for 2022 is a further recovery, with profits rising. high for distillates like diesel.

Emerging Asian markets like Indonesia and Thailand are expected to recover more strongly in 2022, said Peter Lee, senior oil and gas analyst at Fitch Solutions.

Gasoline demand is expected to increase by 350,000 barrels per day in 2022 in Asia, according to Richard Gorry, managing director of JBC Energy Asia.

“The majority of this growth in demand will come from India, followed by China,” he said. “But we would even see demand in Japan increase by 30,000 bpd as COVID restrictions gradually ease.”

Reporting by Stephanie Kelly in New York, Bozorgmehr Sharafedin in London and Koustav Samanta in Singapore Additional reporting by Florence Tan in Singapore Editing by Jacqueline Wong and Matthew Lewis

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