Benchmarking: Delta Forces Rethink of Short-Term Demand

Copyright © 2021 Energy Intelligence Group

• Consensus has adjusted oil consumption downward this year as a coronavirus strain puts the brakes on demand growth just as it had begun accelerating. • In their August reports, three of four agencies surveyed revised upward their 2021-22 forecasts for non-Opec oil supply, with Russia and US expected to crank out even more barrels. • Forecasts for demand for Opec's crude oil were adjusted downward as the pandemic curbs demand and more non-Opec barrels come to market. The Delta strain of the coronavirus has forced downward revisions to the demand outlook in 2021-22, although the range is quite large. Energy Intelligence is the most bearish as we see a significant pandemic impact on consumption in the remaining months of this year. This comes after a downward revision to the second quarter, foreshadowing later weakness. The consensus from August market reports is that non-Opec crude oil supply in 2021-22 will demonstrate more robust growth than previously forecast, and Russia, which was just given a generous output ceiling under the Opec-plus umbrella, will lead the flow of new barrels (NC Jul.29'21). This, in turn, will reduce the call on Opec both this year and next. The Delta effect A late-summer coronavirus wave has taken part of the luster from the unprecedented post-pandemic surge in oil consumption. Opec remains the singular bull among agencies surveyed and kept its demand forecast for this year and next unchanged at 96.57 million and 99.86 million barrels per day, respectively. At the opposite end of the spectrum is Energy Intelligence. We believe the resurgent virus will take a chunk out of previously anticipated consumption, particularly in non-OECD countries (OMI Aug.16'21). Our latest 2021 forecast is now 97.4 million b/d, which represents a monthly downward adjustment of 480,000 b/d from last month. Much of this consists of jet fuel since the renewal of international flights has not taken place as expected. Still, total liquids demand this year will grow 5.4 million b/d compared to 2020, and next year's growth will slow to 2.9 million b/d, according to our new forecast (OM Briefing Jul.22'21). The International Energy Agency (IEA) is also bearish about the Delta variant impact and has “appreciably downgraded” its demand outlook. The agency sees July-December 2021 demand down by 500,000 b/d, so that entire year demand is now 300,000 b/d lower to 96.15 million b/d. Its 2022 demand forecast was lowered this month by 150,000 b/d to 99.31 million b/d. For its part, the US Energy Information Administration (EIA) struck a middle ground and kept 2021 demand steady at 97.63 million b/d, but it reduced next year’s by 100,000 b/d to 101.25 million b/d. More Non-Opec Barrels Consensus in August shows that total liquids production by non-Opec countries will grow by 1 million b/d this year, which is up by about 130,000 b/d from the previous month’s average forecasts for the four agencies. Russia plays a key role in the revision. Opec, for instance, adjusted this year’s non-Opec supply growth up by 180,000 b/d to 64 million b/d, and Russia accounts for 150,000 b/d of those new barrels. Similarly, the IEA this month upped its forecast of Russia’s 2021 liquids output by 130,000 b/d to 10.85 million b/d. The EIA is less bullish about non-Opec supply and only changed its forecast for this year’s output by 50,000 b/d upward to 64.57 million b/d. Still, Russian liquids output was revised up by 100,000 b/d to 10.79 million b/d. Energy Intelligence is at the high end of consensus on non-Opec production this year: we’ve added 180,000 b/d to average annual non-Opec output, which will now amount to 64.36 million b/d. Three of four agencies have boosted their estimates of non-Opec output in 2022. The IEA and Opec added over 1 million b/d to this group’s output in their latest survey, while Energy Intelligence is forecasting an additional 470,000 b/d for a total 66.4 million b/d. The EIA has split from consensus and revised downward by 50,000 b/d non-Opec output in 2022. Russia dominates in Opec’s and IEA’s upward revisions for non-Opec supply in 2022. Opec now sees Russia posting a total liquids output of 11.78 million b/d next year, up 71,000 b/d compared to last month’s forecast, while the IEA sees Russian liquids output growing to 11.73 million b/d next year, up by 93,000 b/d from the July estimate. Diminishing Call on Opec Lower-than-anticipated consumption, growing non-Opec volumes, and draws on inventories will conspire to reduce demand for Opec oil in 2021-22. In its latest report, Opec revised demand for its crude oil this year down by 240,000 b/d to 27.41 million b/d. The IEA, which does not forecast Opec output or explicitly show a call on Opec, also implied a diminished demand for Opec oil of 240,000 b/d to 27.1 million b/d. Energy Intelligence was at the lower end of consensus on the 2021 call, which we reduced by only 70,000 b/d to 26.37 million b/d in our latest report, while the EIA was at the high end, reducing the call on Opec by 320,000 b/d to 26.47 million b/d. The same trend holds for 2022. Energy Intelligence now estimates next year’s call on Opec crude at 28.34 million b/d, which is 760,000 b/d lower than a month ago. Opec itself said in its August report that demand for its oil will be 1.1 million b/d less next year and comprise 27.63 million b/d. Gary Peach, New York

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