The IEA offered something for both bulls and bears in its latest monthly report. On one hand, it said that current shortages of natural gas, LNG and coal are providing a fillip to the oil complex. On the other, it warned that surging energy prices are fuelling inflationary pressures which in turn could dampen the economic outlook. As things stand, the IEA suggested that the ongoing energy crisis has prompted a switch to oil that could boost demand by 500,000 bpd over the next six months. This contributed to an upward revision to their 4Q21 and 1Q22 demand forecasts by 100,000 bpd and 360,000 bpd, respectively. For the year, global oil demand in 2021 is seen averaging 96.31 mbpd, 160,000 bpd more than previously thought and representing an annual gain of 5.52 mbpd.
All the while, the agency anticipated less supply from non-OPEC producers in the final quarter of this year. It trimmed its 4Q21 non-OPEC supply forecast by 300,000 bpd on the back of lingering production outages in the US Gulf of Mexico. At the same time, it upped the forecasted call on OPEC crude by a similar amount to 28.5 mbpd over the same period. The organisation is currently pumping well below this level. And despite higher anticipated flows from OPEC and its non-OPEC allies, the IEA’s balances suggest the producer group will still produce 700,000 bpd below the requirement for its crude during the fourth quarter of 2021. The upshot is that OECD commercial oil stocks will continue to trend below the most recent five-year average in the year-end period.
All of which brings us neatly on to next year. Unlike the EIA and OPEC, the IEA upgraded the oil demand outlook for 2022. Estimates for each quarter were raised to the extent that it now expects global oil demand to average 99.6 mbpd next year, 210,000 bpd more than previously thought and an increase of 3.29 mbpd compared to 2021. Yet alongside this healthy upswing in the global thirst for the black stuff is a similarly sized ramp-up in non-OPEC supply. Annual gains of 600,000 bpd for non-OPEC supply in 2021 will accelerate to 3 mbpd in 2022, says the IEA. Driving these increases will be the usual suspects and include the US, Canada and Brazil.
At the same time, demand growth for OPEC crude will be muted. The annual call on OPEC crude in 2022 is expected to remain unchanged compared to this year at 27.5 mbpd. Consequently, the IEA warned that if OPEC+ continues to unwind its cuts, the bloc could pump 800,000 bpd above the call on its crude in 1Q22. By 2Q22, OPEC+ crude oil output could rise to 2.1 mbpd above the call and 2.4 mbpd in 2H22. That doesn’t include the return of Iranian barrels. These potential stock builds in 2022 could offset the uninterrupted period of inventory draws that began in 3Q20 and are expected to last until the end of 2021.
Simply put, the IEA’s implied balances show that OPEC+ will have to delay output hikes in the new year or risk derailing the depletion in global oil stocks. Supply is poised to return with such a bang next year that it is on course to hit pre-Covid 19 rates before demand. In other words, the spectre of a supply surplus imbalances looms large. Oil consumption will continue to outpace supply until the end of this year, but it looks set to be a different story in 2022.
Another day, another (almost) dollar
Warnings from the IEA of a challenging year ahead were lost on market players yesterday. Instead, oil bulls took heart from expectations that the energy crisis will bolster near-term demand for oil. European gas prices moved sharply higher again on Thursday after a recent lull and in doing so bolstered the demand outlook for oil products. All the while, coal shortages continued to plague the Asia region. Coal India Ltd, the world’s top miner of coal, temporarily stopped supplies to industrial users in order to prioritise supplies to power plants.
A further tailwind for the energy complex came courtesy of the Saudi energy minister. Prince Abdulaziz bin Salman Al-Saud shrugged off calls for additional OPEC+ supply and stressed the importance of a gradual, phased-in approach to returning oil output. Oil prices were also helped along by a stellar session on Wall Street. The S&P 500 clocked its best day since March as traders cheered a flurry of strong corporate earnings. Sentiment was also supported by figures showing US jobless claims fell below 300,000 for the first time since the start of the pandemic.
Such was the feel-good factor across the oil market that traders brushed off a bigger-than-expected rise in US crude stocks. The delayed release of oil inventory data from the EIA showed domestic crude stockpiles rose by a hefty 6.1 million bbls in the week to October 8. This marked the third weekly gain on the trot and biggest jump in seven months. This bearish slant was somewhat tempered by a drop in product stocks. Gasoline inventories declined by a forecast-beating 2 million bbl while distillate fuels stockpiles fell by a smaller-than-expected 24,000 bbls. By the close of play, Brent settled up 82 cts/bbl (84.00) and WTI finished 82 cts/bbl higher (81.31). Both crude markers are making further headway into positive territory and are set for another weekly gain amid a tightening fundamental backdrop.