The rapidly spreading coronavirus Delta variant and its impact on the global economy mean the world will consume less oil this year than previously thought, the International Energy Agency said Thursday.
In its closely-watched monthly market report, the Paris-based organization said that the worsening of the pandemic, as well as revisions to historical data, mean its global oil demand outlook has been “appreciably downgraded,” with some of this year’s forecast recovery shifted to 2022.
Investors have become concerned about falling commodities demand in China, where Beijing authorities last week canceled all large-scale exhibitions and events for the remainder of August. That, and other measures aimed at slowing the spread of the Delta variant, has in recent days spooked traders who were already worried about the fragile nature of China’s economic recovery.
The IEA cut its 2021 global oil demand growth forecast by 100,000 barrels a day, while upgrading its 2022 forecast by 200,000 barrels a day. The world’s thirst for oil is still expected to return to pre-pandemic highs in the second half of next year, the report said.
The watchdog added that the timing of the variant’s spread has coincided with planned supply increases from the Organization of the Petroleum Exporting Countries and its allies “stamping out lingering suggestions of a near-term supply crunch or supercycle.”
Those two factors have combined to weigh on oil prices earlier this week, with prices falling to around their lowest level in 2½ months on Monday.
While prices rebounded on Tuesday, they suffered another blow Wednesday, after the White House urged OPEC to boost oil production, saying planned increases are insufficient to fuel the post-pandemic economic recovery. The remarks came as the U.S. tries to tamp down rising consumer prices, particularly that of gasoline.
Crude prices wavered around flat early Thursday. Brent crude oil—the global benchmark—fell 0.2% to $71.31 a barrel and West Texas Intermediate futures, a key U.S. gauge, fell 0.2% to $69.08 a barrel.
Despite remarks Wednesday from National Security adviser Jake Sullivan suggesting OPEC+ should pump more oil, global demand may not keep up with the supply already expected next year if OPEC and its allies continue plans to unwind production cuts, the IEA said.
It may have only been weeks since traders and analysts were discussing the prospect of $100-a-barrel Brent crude in 2022, “but the scale could tilt back to surplus in 2022 if OPEC+ continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices,” the IEA said in its report.
While the watchdog trimmed its 2021 output growth estimates for producing nations outside of the OPEC+ bloc, it raised its supply increase forecasts for next year by 100,000 barrels a day to 1.7 million barrels a day, with the U.S. accounting for 60% of that growth.
Even so, the global oil market may be “slightly short of supply” in this year’s final quarter, said the IEA, unless ongoing talks between Iran and Western nations succeed in reviving a deal that limits Tehran’s nuclear capabilities in return for lifting debilitating sanctions on the country’s oil sector, among others.