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Oil Demand to Exceed Pre-Covid Levels in 2022, IEA Says

BY WILL HORNER | UPDATED JAN 19, 2022 05:21 AM EST

Paris-based agency says total demand this year should stand at 99.7 million barrels a day

Global oil demand will exceed pre-pandemic levels this year thanks to growing Covid-19 immunization rates and as recent virus waves haven’t proved severe enough to warrant a return to strict lockdown measures, the International Energy Agency said Wednesday.

In its monthly oil market report, the IEA hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day. The Paris-based agency also raised its demand growth forecasts for 2021 by 200,000 barrels a day to 5.5 million barrels a day.

Factoring in the IEA’s more optimistic forecasts are signs that recent coronavirus variants have been faster spreading but less fatal, helping boost global economic resilience to the virus, and allowing states to continue on a path of gradually winding down lockdown restrictions.

“The number of Covid cases is exploding world-wide but measures taken by governments to contain the virus are less severe than during earlier waves and their impact on economic activity and oil demand remain relatively subdued," the IEA said.

While the Omicron variant has seen infection rates surge to record levels, its milder nature should help spread immunity to the virus and aid a faster return to pre-virus oil demand, the agency said.

“At the current speed of transmission, a large part of the population will likely have gained immunity by infection or vaccination by the end of the first quarter," the group said. “As a result, restrictions to mobility could be minimal in the second half of the year."

Total demand this year should stand at 99.7 million barrels a day, around 200,000 barrels a day more than 2019 levels, the IEA said. Last month the IEA was expecting this year’s oil demand to be broadly on par with pre-pandemic levels.

A global energy crunch that has seen natural-gas prices soar was another factor supporting the IEA’s forecasts for oil demand. Rocketing prices for natural gas were prompting greater demand for cheaper oil as an energy source, a trend which added 100,000 barrels a day of additional oil demand last month, the IEA said.

While the IEA’s view on demand has grown stronger, the body still expects supply to exceed demand by a narrow margin throughout 2022, despite signs that major producers were struggling to increase their output at agreed-upon levels.

An alliance of the Organization of the Petroleum Producing Countries and a collection of other major producers including Russia—known collectively as OPEC+--missed their planned production targets by 790,000 barrels a day last month.

Global oil supply rose by a modest 130,000 barrels a day last month to 98.6 million barrels a day.

The combination of robust demand and tepid supply hikes are helping to push crude stockpiles lower, something which analysts broadly think will keep oil prices supported this year.

The IEA said that stocks in the wealthier nations that make up the Organization for Economic Cooperation and Development fell by 6.1 million barrels in November to a seven-year low of 2.76 billion barrels. Preliminary data showed a further decline of 45 million barrels in December.

Oil prices built on recent gains after the report’s publication. Futures for West Texas Intermediate, the U.S. crude benchmark, rose 1.3% to $85.89, a day after closing at their highest level since October 2014.

In its own report issued Tuesday, OPEC offered a similar view that recent virus variants had not weighed heavily on demand, but kept its demand growth forecasts for 2021 and 2022 unchanged.

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