IEA expects oil demand to be even lower in 2022 – Callum Macpherson, Investec’s Head of Commodities
The International Energy Agency (IEA) has just published its latest monthly report for the month of July. Unsurprising, there have been downward revisions to the IEA’s forecasts for oil demand due to the spread of the delta variant. For the current quarter, demand expectations have been reduced by 700 kb/d and by 500 kb/d in Q4.
Meanwhile, in 2022, the IEA expects demand to be 200 kb/d lower than it did in its last report. Even based on the IEA’s July report, it looked challenging for OPEC+ to increase output and raise its baseline production levels as it announced it wanted to at its last meeting. This aim looks even more difficult based on these new forecasts. For OPEC specifically, matters are made far worse by significant upward revisions in non-OPEC supply driven by Russia and other former Soviet Union countries.
The consequence of this is that the IEA expects that the amount OPEC needs to produce to balance the market to average only 27.1 mb/d next year, only slightly higher than its forecast for this year of 27.0 mb/d. This compares with the IEA’s July output estimate of 26.68 mb/d. Consequently, the IEA’s forecasts imply that either oil prices will need to fall to levels that disincentivise non-OPEC+ production, to make room for its planned increases, or OPEC+ will need to revise its plans. Not to mention the potential for a lifting of sanctions on Iran.
Any questions, please contact Callum directly : callum.macpherson@investec.co.uk
