(Bloomberg) – Global oil demand will rebound to pre-pandemic levels by the end of next year, the International Energy Agency predicted, urging OPEC and its allies to keep markets balanced by taking advantage of their abundant spare production capacity.
Global consumption will again hit 100 million barrels per day in the second half of 2022 as developed economies control the virus, the agency said, in its first detailed outlook for next year. At some point before the end of the year, demand will exceed pre-Covid levels, he said.
The forecast counters speculation that oil use, and the resulting global warming emissions, may have peaked as a result of social changes in the wake of the pandemic. The IEA itself predicts that consumption will reach a plateau in the 2030s, but has not predicted a peak in demand.
Oil prices have rebounded to a two-year high above $ 70 a barrel as motorists take to the highways and economic activity picks up with the easing of closures. The report, which paints a slightly more optimistic picture than the agency’s latest outlook, underscores that the next market move is in the hands of Russia and Saudi Arabia.
The Paris-based IEA made a direct call on the OPEC + alliance, led by those two countries, to continue to restore production that it cut when demand collapsed last year.
“OPEC + needs to turn on the taps to keep world oil markets adequately supplied,” said the agency, which advises most major economies. Meeting demand growth is unlikely to be a problem if the 23-nation coalition acts because only a fifth of its available capacity is needed to maintain market equilibrium, he said.
IEA Executive Director Fatih Birol has warned of a further increase in prices if no additional supplies are received. However, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has said he will wait until consumption is tangible before responding.
The Organization of the Petroleum Exporting Countries and its partners have already achieved their main market goal, having cleared the huge excess inventory that built up during the pandemic, the report showed. The group’s next step should be straightforward, according to the IEA.
OPEC + will need to add about 1.4 million barrels a day, or less if its partner Iran reaches a deal to remove US sanctions, leaving it with another 5.5 million barrels a day offline, according to IEA estimates. . Bloomberg calculations suggest that the mattress is not that generous.
Tehran could add 1.4 million barrels of exports if it concludes a nuclear deal with Washington that removes US barriers to its oil trade, the IEA estimates, equivalent to the amount the entire OPEC + coalition needs to add. The group will meet on July 1 to consider their next move.
The alliance, perhaps unintentionally, has made their work easier. By making massive cuts in production last year and supporting prices, the group has encouraged investment from US shale drillers and other rivals, the report showed.
Non-OPEC + supply will recover by 1.6 million barrels per day in 2022, meeting half of the anticipated 3.1 million barrel increase in demand. Even if OPEC + increased production enough to meet increased demand, its production would still be 2 million barrels per day below 2019 levels.
On a full-year basis, global oil consumption will remain slightly below 2019 levels next year, at 99.5 million barrels per day. The recovery in consumption will also be uneven.
While demand for gasoline and diesel fuels will increase next year, it will still be 1% below pre-Covid levels due to the growth of remote work and the popularity of electric vehicles, the IEA said. Jet fuel purchases will also increase, but remain 11% below previous levels due to limits on air travel.
And with countries outside the developed world still battered by new waves of the virus, the recovery may also prove uneven at the regional level.
“While the end of the pandemic is in sight in advanced economies, the slow distribution of vaccines could still jeopardize the recovery in non-OECD countries,” the IEA said.
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