May 20, 2022


Benchmarking: Faltering Demand Straightens Global Balance

  • The demand outlook for 2022 suffers another blow in May market reports, and consensus now sees consumption rising this year by 2.4 million b/d, down from 3.6 million b/d in January.
  • Forecasts for Russian output this year vary tremendously among agencies surveyed, ranging from a decline of 1.25 million b/d to a small gain of 100,000 b/d.
  • After a series of downward revisions to demand, the global market is shaping up to be more balanced, consensus shows.

Covid-related mobility restrictions in China and lofty, demand-deleterious fuel prices have led to significant adjustments in forecasts for demand growth in 2022. And with ominous signs of an imminent economic recession, more revisions are likely in months ahead.

The supply side is equally sketchy now that Russian oil might soon come under embargo in Europe. Meanwhile, US shale growth is slower than thought, Libya sees a major outage since mid-April, a return of Iranian barrels looks less likely by the week, and Opec-plus leaders have made it clear they will not bow to pressure and crank out more oil.

Putting these two inclement sides together, a picture of an overall more balanced global market emerges. Neither a major draw nor a surplus are in the cards by year’s end, according to the four agencies.

Withering Demand Growth

Based on May reports of the four agencies, the range for growth of liquid hydrocarbon consumption this year is 1.8 million-3.4 million barrels per day.

Interestingly, three of four agencies now see total demand for 2022 coming in below the 100 million b/d threshold. Three months ago, all had estimated that demand would average above that key level.

On the bearish end is the International Energy Agency (IEA), which is forecasting total demand of 99.4 million b/d this year, up 1.8 million from 2021. The Paris-based agency has now revised demand growth down by 1.5 million b/d since the start of the year, the most among the forecasts studied here.

The optimists are in Opec, where analysts see demand growing 3.4 million b/d to 100.3 million b/d.

Energy Intelligence and the US Energy Information Agency (EIA) are in the middle of consensus, although closer to the IEA. We believe that demand will rise by 2.1 million b/d to 99.6 million b/d, while the EIA’s growth forecast is for 2.2 million b/d, also reaching 99.6 million b/d.

Created with Highcharts 9.0.0(million b/d)DEMAND GROWTH FORECASTS, 2022Energy IntelligenceIEAOpecEIASep '21Nov '21Jan '22Mar '22May '22Jul '22Sep '22Nov '2212345Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO
Created with Highcharts 9.0.0(million b/d)DEMAND FORECASTS, 2022Energy IntelligenceIEAOpecEIASep '21Nov '21Jan '22Mar '22May '22Jul '22Sep '22Nov '2299100101102Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Russian Enigma

According to official data out of Moscow, Russian output of crude and gas condensate fell by nearly 1 million b/d from January to April, when it averaged 10.06 million b/d for the month. Output has picked up a couple percentage points so far in May, but clearly the road ahead is rocky for the world’s third-largest producer.

Curiously, however, Opec still believes Russia will eke out a production gain this year. In its Monthly Oil Market Report, the producers group said that, although “subject to very high uncertainty,” the forecast for Russian liquids output, including natural gas liquids, sees a 100,000 b/d increase to an average 10.88 million b/d.

The other agencies have marked Russia for an output decline. The IEA has estimated this year’s decline in liquids at 1.25 million b/d, reaching 9.62 million b/d, while the EIA forecasts a 750,000 b/d fall to just over 10 million b/d.

Energy Intelligence believes Russian liquids production will sink 700,000 b/d in 2022 to 10.41 million b/d.

The drop in Russian hydrocarbons this year has sparked a sharp downward trajectory of non-Opec production this year by all agencies, particularly by the IEA.

Created with Highcharts 9.0.0(million b/d)NON-OPEC SUPPLY GROWTH FORECASTS, 2022Energy IntelligenceIEAOpecEIASep '21Nov '21Jan '22Mar '22May '22Jul '22Sep '22Nov '2201234Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Calmer Inventories

After numerous, significant adjustments to demand and supply, the consensus is that markets appear more balanced this year. Large draws on inventories won’t be necessary to meet soaring demand, nor will the world see oil stockpiled.

The IEA, for instance, sees supply and demand evenly balanced in the fourth quarter at 100.4 million b/d. For the entire year, it sees a net draw of 140,000 b/d.

Energy Intelligence now presumes a net draw of only 40,000 b/d for 2022. However, in contrast to other agencies, we see an average draw of 600,000 in the second half of the year due to a 1.3 million b/d surge in consumption in the fourth quarter.

Opec does not forecast output by its own members, but if using Energy Intelligence’s assumptions for production by these 13 countries, global markets will manage a tiny surplus of 40,000 b/d for the year, Opec’s balance shows.

The EIA stands apart from the rest in predicting a net surplus of 280,000 b/d for the year. In fact, in all four quarters of 2022 global markets will see surpluses, the US agency showed in its latest report, although in the fourth quarter it will be a mere 100,000 b/d.

Created with Highcharts 9.0.0(million b/d)LATEST GLOBAL SURPLUS/DEFICIT ESTIMATESEnergy IntelligenceIEA*Opec†EIAQ1'21Q2'21Q3'21Q4'21Q1'22Q2'22Q3'22Q4'22-4-3-2-101

NOTE: *Reflects latest Opec-plus deal and member countries' sustainable capacity. †Assumes current Energy Intelligence Opec supply forecast.
Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Gary Peach, New York