IEA Sees Delta Variant Denting Demand

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The International Energy Agency (IEA) has lowered its forecast of global oil demand for this year by 200,000 barrels per day as the Delta variant drives a new wave of Covid-19 infections just as Opec-plus is starting to increase supply. "The immediate [supply] boost from Opec-plus is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle," the agency said in its latest Oil Market Report, which was published Thursday. The IEA has now cut its demand estimate for the second half of this year by more than 500,000 b/d from its July report, including revisions to historical data. Opec, meanwhile, kept its own demand forecast for this year unchanged in its own Monthly Oil Market Report, which was also published on Thursday. The IEA now sees global demand rising by 5.3 million b/d this year, to an average of 96.2 million b/d and by a further 3.2 million b/d in 2022 (see table). Divide Between Rich and Poor Oil demand growth "abruptly reversed course" in July, falling by 120,000 b/d as large Asian buyers such as China and Indonesia lowered their intake, the IEA said. And the divide between developed economies and emerging markets has widened. Demand in the OECD countries rose by 520,000 b/d in July from June, boosted by consumers' eagerness to travel again after a year and a half of frustrating lockdowns. In the non-OECD countries, however, oil demand fell by 640,000 b/d in July -- with little prospect of an improvement in August -- as the Delta variant and the slow pace of vaccination put a dent in consumption of oil products. This asynchronous recovery is also visible in other economic indicators. GDP growth in OECD Europe and the US has remained strong, supported by household savings and fiscal stimulus measures. Despite a new wave of Covid-19 cases, high vaccination rates have minimized economic disruption. Opec Unfazed by Delta Variant Meanwhile, Opec's number-crunchers appeared unfazed by the Delta variant and left their demand outlook unchanged, with projected increases of 6.0 million b/d in 2021 and 3.3 million b/d in 2022. "The Covid-19 pandemic is anticipated to be controlled by vaccination programs and improved treatment, resulting in a further recovery in economic activity and a steady rise in oil demand in both the OECD and non-OECD," the group's August market report said. Despite concerns in some quarters about the strength of demand, the world will still need more oil this year and supply is on the rise. The IEA estimates that total Opec-plus oil output is now set to expand by an average of 1.2 million b/d in 2021, including the 400,000 b/d that the alliance has agreed to add every month from August through the end of the year. But even that may not be enough -- especially if US sanctions continue to block Iranian exports. “Despite the Opec-plus boost, the market could still be left slightly short of supply," in the fourth quarter of this year, the IEA said. It estimated that Opec-plus may pump about 200,000 b/d below what the market needs during that quarter. Opec, meanwhile, has raised its estimate of 2021 supply from its non-Opec allies by 270,000 b/d in 2021 and by 840,000 b/d in 2022. That mainly reflects agreed increases from Russia and Kazakhstan within the Opec-plus framework. Opec's forecasters also estimate that US oil output will now grow by a faster-than-expected 780,000 b/d in 2022. Upward revisions of non-Opec supply have led to a downward revision of 1.1 million b/d in Opec's estimate of demand for its members' crude by 1.1 million b/d in 2022, which it now estimates at 27.63 million b/d. That's just 220,000 b/d higher than estimated demand for Opec crude in 2021. Julien Mathonniere, London, and John van Schaik, New York

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