Oil Demand Forecast by KeyBanc - Dec 23

[dan_s]

Note this morning from KeyBanc:

U.S. E&P Midweek Update: We Think Omicron Fears Wane by Late January, Which Reduces Oil Volatility;
We Expect Most E&Ps to Spend Above Consensus Capex in 2022
Leo Mariani, CFA - (512) 872-7875 - leo.mariani@key.com

WTI oil prices have seen a meaningful surge in volatility thus far in December due to concerns around the potential impact to
demand of the omicron variant of Covid-19. WTI oil has seen an average daily move of 2.2% in December vs. 1.8% in November
and 1.3% in October. We have not seen any material impact to oil demand thus far in December as leading indicators like global
flight capacity, global road congestion and weekly U.S. gasoline demand data have risen in November vs. December levels. That
being said, we think demand stays strong through the holidays before waning in January due to normal post holiday seasonal
weakness and some lingering travel restrictions and lockdowns in select parts of Europe. We think the omicron variant will infect
most people around the world by mid-January, leading to a big spike in cases, but that the world will not see a commensurate rise
in deaths and ICU cases as the variant seems to be mild. We think we may see some oil price weakness in January, but we expect
global mobility to rise in February and into the Spring and that oil prices will move higher right along with it. In fact, we see oil
demand hitting pre-pandemic levels of 100 MMBopd or more by mid-2022. We expect U.S. public E&P capex to be up 20-25% y/y
in 2022, with a little more than half of the increase due to inflation and the remainder due to higher activity levels. We don't think that
these higher activity levels in 2022 will result in much more production growth next year as most of it will be to make up for under-
investment in 2021 and to set up for a little better growth in 2023. We also think that most U.S. E&Ps report 2022 capex budgets
in 1Q22 that are generally above current sell-side consensus estimates as we don't think enough inflation is being baked-in.