Stephanie Kelly and Bozorgmehr Sharafedin, Koustav Saanta

NEW YORK (Reuters – The global oil demand exploded in 2021, as the world recovered from the coronavirus outbreak. Global consumption may reach a new high in 2022, despite all efforts to decrease fossil fuel use to address climate change.

As consumers returned to travel, and businesses grew, gasoline and diesel consumption soared in this year. The International Energy Agency predicts that crude consumption in 2022 will rise to 99.53 millions barrels per day (bpd), a significant increase from the current 96.2 million. This would only be slightly less than the daily consumption of 99.55 millions barrels in 2019.

Both OPEC, as well as the U.S. shale industries will have to fulfill demand. This comes after a year where major producers were surprised at the rebound in activity which overwhelmed supply and caused tight inventories around the world. Many OPEC countries have had difficulty increasing their output while the U.S. shale sector must deal with investors’ demands for a limit on spending.

Prices rose to about $86 per barrel after starting the year at $52/barrel. Then, they dropped off towards the end. Forecasters believe prices may resume an upward trend in 2022, if supply does not increase as expected. Bank of America (NYSE 🙂 Researchers estimate Brent will be at an average price of $85 per barrel in 2022. This is due to low inventory and a dearth of spare capacity.

The unknown is the Omicron coronavirus variant https://www.reuters.com/world/the-great-reboot/omicrons-march-revives-urgent-global-calls-vaccinations-2021-12-22, as numerous countries have reimposed travel curbs which will hurt the aviation industry and consumption.

Damien Courvalin from Goldman Sachs, who heads energy research (NYSE:), stated that “if this is another wave similar to those we’ve seen previously then it is a detrimental hit to economic growth for the first quarter in 2022.” However, the oil demand that briefly reached pre-COVID levels at the beginning of November would rise if there’s a recovery. It will then reach record highs most likely for 2022.

Suppliers were taken by surprise when the 2021 rebound occurred, which raised tensions between the largest producing nations and world’s top consumers, such as the United States and China. After gasoline prices rose sharply in the first quarter of this year, the U.S. president Joe Biden called on the Organization of the Petroleum Exporting Countries (OPEC+) and its allies to increase overall production after restraining supplies for several months. (GRAPHIC: Demand rebound https://graphics.reuters.com/GLOBAL-OIL/YEARENDER/zjpqkyrnopx/index.html)

Despite this, OPEC countries have had difficulty increasing output because of underinvestment. Reuters data revealed that the group exceeded its November production targets.

Similar to the U.S. shale sector, they have not responded as expected to rising prices, despite investor pressures to reduce spending. According to U.S. Energy Information Administration, U.S. overall production was 11.2 million bpd by 2021. This compares with a record close to 13 million bpd at the end of 2019.

Claudio Galimberti, Rystad Energy’s senior vice president of analysis, stated that Brazil, Canada, Norway and Guyana should all increase their supply over the next year. According to EIA, the U.S. will produce an average of 11.9 million barrels per day in oil by 2022.

OMICRON’S UNCERTAINTY

Coronavirus cases have been on the rise due to Omicron variant which is highly contagious. Further outbreaks may slow down recovery in large economies. The IEA has lowered its expectations, as have others. The IEA reduced its 2021-2022 forecasts by 100,000 bpd to reflect lower air travel.

Fereidun Fesharaki (chairman of FGE consultancy) stated that even 5% of people who are not vaccinated could cause a crisis. The idea that you could have 70%, 90% or 80 vaccinated without any problems is under attack.

There is not yet any evidence that Omicron has had an impact on the demand. Fuel inventories at the Amsterdam-Rotterdam-Antwerp (ARA) hub, a key European oil and gas shipping locale, fell in the most recent week – a signal of steady consumption. Fuel prices have reached their highest levels in Britain according to Fuel Watch data, an automotive service firm RAC.

Omicron-led concern has caused Asia’s refineries to reduce their profit margins for gasoline production. But, the expectation is that there will be further recovery in 2022, and greater profits for diesel.

Peter Lee from Fitch Solutions, senior oil & gas analyst said that Asian emerging markets such as Thailand and Indonesia are likely to rebound more quickly in 2022.

According to Richard Gorry (managing director, JBC Energy Asia), Asia’s gasoline demand will grow by 350,000 barrels per hour in 2022.

He stated that India will be the largest source of demand growth, with China following closely. We would see Japan demand growing at 30,000 BPD as the COVID restriction gradually eases.”