Opec Takes Rosy View Despite Delta Threat

Copyright © 2021 Energy Intelligence Group

Opec is taking a rosy view of global oil demand in 2022 despite concerns in other quarters that the Delta variant of Covid-19 could dampen economic activity and travel next year.

In the group's latest Monthly Oil Market Report, published on Monday, Opec's number crunchers have raised their forecast of demand growth in 2022 by some 900,000 barrels per day to 4.2 million b/d (see table).

The new forecast pegs annual demand in 2022 at 100.83 million b/d, surpassing the pre-pandemic annual record of 100.03 million b/d in 2019. Demand in the third and fourth quarters of next year is projected to exceed 102 million b/d.

The upward revision was expected, having been discussed at the most recent Opec-plus ministerial meeting .

Nevertheless, it appears to have generated some internal debate and controversy, with Reuters quoting two sources as saying that the big upward revision of 2022 demand would probably not go ahead.

Certainly, Opec's view differs from the assessment of other market-watchers, who see the Delta variant chipping away at demand next year.

The International Energy Agency (IEA) sees demand growing by 3.2 million b/d next year, with Energy Intelligence projecting an increase of just 2.9 million b/d.

Even if the new Opec estimate is close to the mark, the future trajectory of demand suggests that the broader Opec-plus alliance may need to pause its planned monthly production increases of 400,000 b/d by the end of this year.

Front-Loaded Revisions

A striking feature of the revisions in the Opec forecast is the extent to which they have been front-loaded in the first half of next year -- a period which has caused some fretting among producers about the strength of oil demand.

The demand forecast for the first quarter has been raised by almost 1.2 million b/d, compared with last month's report, while demand for the second quarter has been raised by more than 1.4 million b/d.

Opec's forecasters have also lowered their estimates of non-Opec supply for the first half of next year, and this has contributed to some dramatic gains in projected demand for Opec crude -- a key metric for decisions on supply policy.

Broadly speaking, the "call on Opec crude" is calculated by subtracting projected non-Opec supply from the estimate for global demand.

For the first half of 2022 this is now pegged at 27.46 million b/d, almost 1.5 million b/d higher than in Opec's August report.

The August report showed the annual call on Opec crude growing by just 220,000 b/d in 2022, while the September report bumps that number up to 1.08 million b/d.

Demand for oil is usually closely correlated to the pace of economic growth. But the latest Opec report notes that "global economic growth forecasts for both 2021 and 2022 remain unchanged from last month's assessment at 5.6% and 4.2% respectively."

Non-Opec Supply Disruptions

The September report shows the call on Opec crude crashing by some 2.4 million b/d between the final quarter of 2021 and the first quarter of 2021. But that's a big improvement on the 3.77 million b/d collapse projected in the August report.

Opec's forecasters did concede that there would be some impacts from the Delta variant, lowering their demand projection for the final quarter of this year by 120,000 b/d.

The new report also warned that "robust growth continues to be challenged by uncertainties such as the spread of Covid-19 variants and pace of vaccine rollouts worldwide, as well as ongoing global supply-chain disruptions."

The estimate of demand for Opec crude in 2021 has been boosted by recent disruptions of non-Opec supply -- notably in the southern part of the Gulf of Mexico, where Mexico's output was hit by a fire at an offshore platform, and in the northern part, where US offshore output was hit by Hurricane Ida.

Projected non-Opec supply for the whole of 2021 was lowered by 170,000 b/d, with the estimate for the third quarter taken down by a full 500,000 b/d.

Opec members appear to have strengthened compliance with Opec-plus production cuts in August, partly because some producers have been experiencing technical problems (related ).

The report said Opec crude oil production increased by 150,000 b/d in August, versus July, to average 26.76 million b/d, based on the assessments of secondary sources.

That fell short of the combined 255,000 b/d increase granted to the Opec subgroup under the Opec-plus alliance's plan to increase the production of its Opec and non-Opec members by 400,000 b/d each month, starting in August.

Revised Energy Intelligence Assessment

Energy Intelligence’s revised assessment of Opec-plus production in August shows that the 19 members of the alliance with a quota produced 35.88 million b/d of crude oil last month, a 263,000 b/d increase over July.

Output by the entire alliance -- including Iran, Libya, Venezuela, and Mexico which do not have production ceilings -- amounted to 41.68 million b/d, up 230,000 b/d from July.

Saudi Arabia's output was assessed at 9.55 million b/d, a gain of 105,000 b/d versus July but still 47,000 b/d short of its Opec-plus ceiling.

A Rosier Outlook: Opec Supply and Demand Balances
(million b/d)2020Q1'21Q2'21Q3'21Q4'212021Annual Chg.
Oil Demand90.7392.8295.6298.4699.7096.685.96
Non-Opec Supply62.9362.4363.2264.1365.5663.850.92
Opec NGLs and Non-Conventionals5.
Total Non-Opec Oil and Opec NGL Supply67.9867.5468.3369.3670.7969.011.04
Call on Opec Crude22.7525.2827.2929.1028.9227.674.92
(million b/d)2021Q1'22Q2'22Q3'22Q4'222022Annual Chg.
Oil Demand96.6897.99100.15102.29102.81100.834.15
Non-Opec Supply63.8566.2266.4866.6967.7666.792.95
Opec NGLs and Non-Conventionals5.
Total Non-Opec Oil and Opec NGL Supply69.0171.4771.7672.0073.0972.093.07
Call on Opec Crude27.6726.5228.3930.2929.7128.751.08

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