Oil demand is set to rise above pre-pandemic levels by the end of 2022, the International Energy Agency (IEA) predicted, urging OPEC and its allies to keep markets balanced by tapping their plentiful spare production capacity.
A gradual return of demand is being seen as vaccine distribution widens and economic activity returns to normal in many countries and sectors, said IEA in its first detailed look at next year in the regular monthly review of the oil market.
World consumption will once again surpass 100 million barrels a day in the second half of 2022 as developed economies bring the virus under control, the agency said.
Oil demand tanked by a record 8.6 million barrels per day (mbd) last year as countries shut down swathes of their economies as the coronavirus spread around the world. The IEA expects it to rebound by 5.4 mbd this year and a further 3.1 mbd in 2022.
Demand is expected to recover faster in wealthy nations with earlier access to vaccines, but some sectors like aviation will see a slow rebound as travel restrictions remain in place and more people work from home than before.
“A widespread return of the global aviation industry to normal capacity appears off the cards until most countries have reached herd immunity, which may not happen until late 2022,” said the IEA.
The recent surge in cases in many developing nations is a reminder that the pandemic is not over, and the global oil demand dipped in May due to the outbreaks. The chances of new outbreaks occurring cannot be ignored as some nations aren’t expected to vaccinate a sufficient number of people until late next year.
IEA says that the oil demand is expected to climb in the coming months and meeting the expected demand growth is unlikely to be a problem. The agency expects countries outside the OPEC+ group to boost output by 1.6 mbd next year, to exceed 2019 levels. Meanwhile, OPEC+ nations have 6.9 mbd of spare capacity even after lifting production by 2 mbd over the May-July period.
“Even if OPEC+ producers were to fill the gap created by demand growth, the bloc’s output would still be more than 2 mbd below the 2019 average,” it noted.
Members of the OPEC cartel and allies like Russia slashed production in 2020 to boost and stabilize oil prices which briefly dropped into negative territory. OPEC+ is slowly increasing output as the global economy recovers, but at a rate where oil stocks are being slowly reduced.
The IEA noted that oil industry stocks in the Organisation for Economic Co-operation and Development (OECD) advanced nations fell below their 2015-2019 average for the first time in more than a year. Lower stocks will give OPEC+ nations greater strength over crude prices, with the top two oil contracts recently surpassing $70.00 a barrel.
The IEA also highlighted that the expected rebound in oil demand comes as most nations have yet to adopt near-term policies to meet their pledges to become carbon neutral by mid-century, as detailed in a separate report recently.