In separate outlook reports about the world oil market, the International Energy Agency (IEA) and Organisation of Petroleum Exporting Countries (OPEC) have given divergent views about the 2022 forecast for growth, amid fears that a global recession will crimp demand.
On Thursday, the IEA, the adviser to industrialised countries, hiked its 2022 oil demand growth estimate by 380,000 barrels per day (bpd) to 2.1 million bpd, citing “soaring” oil use in power generation and gas-to-oil switching in industry prompted by the Ukraine crisis and surging gas prices.
According to the Paris-based think tank, the unusually large revision reflects “extraordinary” increases in Europe and the Middle East, particularly Iraq and Saudi Arabia, although it added the revision masked weakness in some sectors and growth is set to almost peter out as the year advances, with Q4 demand growing just 40,000 bpd year on year.
The increase in the IEA’s 2022 growth estimate runs contrary to OPEC, who cut its 2022 demand growth estimate on August 11 to 3.1 million bpd from 3.4 million bpd, citing likely renewed COVID-19 restrictions and “geopolitical uncertainties.”
OPEC left its 2023 growth projection unchanged at 2.7 million bpd.
Oil use has rebounded from the worst of the pandemic and is set to exceed 2019 levels this year even after prices hit record highs. However, high crude prices and Chinese coronavirus outbreaks have eaten into 2022 growth projections.
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“Global oil market fundamentals continued their strong recovery to pre-COVID-19 levels for most of the first half of 2022, albeit signs of slowing growth in the world economy and oil demand have emerged,” OPEC said in the report.
OPEC cut its 2022 global economic growth forecast to 3.1percent from 3.5 percent and trimmed next year to 3.1percent, saying that the prospect of further weakness remained.
“This is, however, still solid growth, when compared with pre-pandemic growth levels, which were only slightly higher on average and not burdened by current potentially impactful issues,” OPEC said.
For 2023 the IEA kept its demand growth estimate unchanged at 2.1 million bpd, with 2023 demand now set at 101.8 million bpd, up from 101.3 million bpd previously.
The IEA also raised its estimates of the “call” for OPEC-plus crude for each quarter of 2022, with a full-year upward revision of 700,000 bpd, while lowering its 2023 estimates.
“With several regions experiencing blazing heat waves, the latest data confirm increased oil burn in power generation, especially in Europe and the Middle East, but also across Asia,” the IEA said.
“A looming natural gas crunch in Europe is already incentivizing substantial gas-to-oil demand substitution,” it said, suggesting the situation could persist to at least the end of 2023.
“EU members have committed to reducing their demand for gas by 15 percent from August 2022 to March 2023. We estimate that this will increase oil consumption by roughly 300,000 b/d for the next six quarters.”
“Industrial consumers, particularly refiners, can replace a great deal of gas use with oil,” the IEA added, estimating such switching would boost fuel oil demand by 150,000 bpd and gasoil demand by 140,000 bpd.
On Russia, the IEA raised its production estimate for the second half of the year by 500,000 bpd on signs of sanctions being more limited in their impact than expected as flows are redirected to non-sanctioning countries.
It highlighted expectations of sanctions biting more deeply later in the year, with an EU embargo due to take effect in December, but also discussion among politicians of possible moves to soften sanctions.
Russian oil export revenues were down $2 billion in July to $19 billion mostly because of lower prices, and the IEA flagged that China overtook Europe for the first time as the main destination for Russia’s crude.
