IEA's Monthly "Oil Market Report" - June 2021

IEA's Monthly "Oil Market Report" - June 2021

Postby dan_s » Fri Jun 11, 2021 7:49 am

IEA's previously published "Net Zero Report", calling for an end to all upstream investments, is debunked by this month's Oil Market Report which forecasts rapidly increasing demand for oil. Remember that falling OEDC oil inventories are the primary driver of oil prices. Below is the summary of the report.
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Our first detailed look at 2022 balances confirms earlier expectations that OPEC+ needs to open the taps to keep the world oil markets adequately supplied.

Global oil demand will continue to recover and, in the absence of further policy changes, by end-2022 reach 100.6 mb/d. Non-OPEC+ production is also set to rise, but gains are nowhere near the levels needed to prevent further stockdraws. In April, OECD total industry stocks fell 61.3 mb below their 2016-2020 average. The pace at which the OPEC+ cuts can be unwound will depend not only on the success in containing the spread of the virus and demand growth but also the timing of the eventual return of Iranian barrels to the market.

Following a record decline of 8.6 mb/d in 2020, global oil demand is forecast to rebound by 5.4 mb/d in 2021 and a further 3.1 mb/d next year, to average 99.5 mb/d. By end-2022, demand should surpass pre-Covid levels. The recovery will be uneven not only amongst regions but across sectors and products. While the end of the pandemic is in sight in advanced economies, slow vaccine distribution could still jeopardise the recovery in non-OECD countries. The aviation sector will be the slowest to recover as some travel restrictions are likely to stay in place until the pandemic is brought firmly under control. Gasoline demand is also expected to lag pre-Covid levels, as continued teleworking practices and a rising share of electric and more efficient vehicles provide an offset to increased mobility. Petrochemicals will be boosted by robust demand for plastics, while global trade supports bunker demand.

Meeting the expected demand growth is unlikely to be a problem. Even after boosting oil production by around 2 mb/d over the May-July period, OPEC+ will have 6.9 mb/d of effective spare capacity. If sanctions on Iran are lifted, an additional 1.4 mb/d could be brought to market in relatively short order. As for those producers outside the alliance, output growth is set to accelerate from 700 kb/d in 2021 to 1.6 mb/d next year. The US leads 2022 gains, adding more than 900 kb/d to total supply, followed by Canada, Brazil and Norway. That leaves non-OPEC+ output well above 2019 levels. By contrast, even if OPEC+ producers were to fill the gap created by demand growth, the bloc’s output would still be more than 2 mb/d below the 2019 average.

The refining sector, meanwhile, is expected to remain under pressure. In 2022, demand for refined products will still be below 2017 levels. Following net capacity additions of 3.3 mb/d over the 2017-20 period, a further 1.5 mb/d of new net crude distillation capacity will come online in 2021-22. This means that global average utilisation rates reach 78%, limiting any rebound in refinery margins from the depressed 2020-21 levels.

The forecast also highlights the challenges outlined in the IEA’s recently released Net Zero by 2050 - A Roadmap for the Global Energy Sector. This roadmap notes that most pledges by countries are not yet underpinned by near‐term policies and measures. In the meantime, oil demand looks set to continue to rise, underlining the enormous effort required to get on track to reach stated ambitions.
Dan Steffens
Energy Prospectus Group
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