A surge in COVID-19 cases and severe new lockdowns in China led to a downward revision to the International Energy Agency (IEA)’s global demand forecasts for second-quarter 2022 and for the year, according to the latest Oil Market Report (OMR).
In addition, more complete data for first-quarter 2022, especially in the US, were weaker than preliminary estimates, adding to the downgrade. IEA’s global oil demand forecast has been revised down by 260,000 b/d for the year and is now projected to average 99.4 million b/d in 2022, up 1.9 million b/d from 2021.
Meantime, IEA has also raised its oil price assumptions for the remainder of the year and slightly adjusted the GDP assumptions based on the latest-available macroeconomic forecasts. Since last month’s report, the ICE Brent forward curve has increased by 6%, to $102/bbl on average for 2022, as of Apr. 1. World GPD growth for 2022 was marginally lower from the previous forecast at 3.4%.
“Significant downside risks to the economic outlook remain. Major forecasting institutions are in the process of revising down their economic assumptions as the war in Ukraine continues to strongly impact commodity flows, prices, inflation, and currencies. The latest trade indicators also point to a significant contraction in container activity since the start of the war due to expanding sanctions on Russia and increased uncertainty. The Kiel Trade Indicator, an important gauge of global container activity, fell by 2.8% month-on-month in March. European container exports decreased by 5.6% and US exports fell by 3.4%. Russian exports were down by 5% while imports fell by 9.7%. The negative impact of lower container trade on bunker fuel demand is partially offset by longer transport routes for crude oil and oil products,” said IEA.
Recovery in aviation is progressing slightly slower than expected, as sanctions on Russia and a COVID-19 outbreak in China have tempered the rebound in recent weeks.
Global oil supply
On the supply side, uncertainty is clouding the outlook for world oil supply at the start of the second quarter.
According to IEA data, global oil supply rose in March by 450,000 b/d to 99.1 million b/d, led by non-OPEC+ countries. Russian oil supply is expected to fall by 1.5 million b/d in April, with shut-ins projected to accelerate to around 3 million b/d from May.
“By far the biggest variable is Russian oil production–just how much will be shut in after Moscow’s invasion of Ukraine as companies shun exports and consumption slows internally. So far in April, around 700,000 b/d on average had reportedly gone offline vs. March and, for now, we assume losses will grow to an average 1.5 million b/d for the month as Russian refiners throttle back further and buyers shy away. From May onwards, close to 3 million b/d could be offline as the full impact of a widening customer-driven voluntary embargo on Moscow comes into effect,” IEA said, noting the estimates are under continuous review given the evolving situation and uncertainty, and will be revised as necessary.
Despite the disruption to Russian oil supplies, lower demand expectations, steady output increases from OPEC+ members along with the US and other non-OPEC+ countries, and massive stock releases from IEA member countries should prevent a sharp deficit from developing, IEA noted.
Excluding Russia, output from the rest of the world is set to rise by 3.9 million b/d from March through December. OPEC+ is expected gradually to increase output by 1.9 million b/d, assuming it fully unwinds OPEC+ cuts in line with existing policy. Middle East members account for most of the increase. Saudi Arabia is projected to add 780,000 b/d while Iraq, Kuwait, and the UAE could, together, add a similar amount. Non-OPEC+ producers are expected to pump 2 million b/d more. The US is set to lead the gains, rising by 1.27 million b/d, while Canada, Brazil, and Guyana also post substantial increases. For the year, production is forecast to rise 5.5 million b/d (excluding Russia)–with OPEC+ accounting for 3.5 million b/d and non-OPEC+ 2 million b/d. The US accounts for 62% of the non-OPEC+ expansion.
Refining, stocks
Global refinery throughputs are forecast to increase by 4.4 million b/d from April to August due to new capacity and normal seasonal gains. This would allow product inventories to see the first build in 2 years, offering some respite to the tight market. Overall, 2022 runs are forecast to gain 3 million b/d year-on-year but will remain below 2017 levels.
Global oil inventories have decreased for 14 consecutive months, with February stocks 714 million bbl below the end-2020 level and OECD countries accounting for 70% of the decline. OECD total industry stocks fell by 42.2 million bbl to 2,611 million bbl in February, nearly double the seasonal trend. Preliminary data show a build in OECD industry stocks of 8.8 million bbl for March.