Delta variant spread, a big blow to oil demand outlook – IEA predicts
The International Energy Agency (IEA) has warned that new mobility restrictions in Asia to fight the Delta variant of the COVID-19 would slow down global oil demand growth in the second half of 2021.
According to the agency, the rising demand for oil abruptly reversed course in July and is set to proceed more slowly for the rest of the year due to the spread of the delta variant.
In its Oil Market Report published on Thursday, August 12, the international energy agency indicated that global oil demand growth would increase by 5.3 million barrels per day (BPD) to an average of 96.2 million BPD in 2021, in addition to 3.2 million BPD in 2022.
“Growth for the second half of 2021 has been downgraded more sharply, as new Covid-19 restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use.
At the end of the first half of 2021, in June, global oil demand jumped by as much as 3.8 million BPD compared to May, led by increased travel in North America and Europe,” the report stated.
“We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia and other parts of Asia,” the report highlighted.
However, the agency observed that growth abruptly reversed course in July, and the outlook for the remaining months of 2021 has been downgraded due to the worsening progression of the pandemic and revisions to historical data.
July also saw a slowdown in the recovery of global refinery activity, “as new waves of Covid-19 cut into fuel demand while margins remained under pressure, while demand growth is set to slow down, supply is rising fast,” the Paris-based agency noted.
“The immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the report further stated.
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Even after the deal from last month, OPEC+ is estimated to pump about 200,000 BPD below the call on its crude in Q4 2021, compared with a deficit of up to 2 million BPD expected before the July agreement.
“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,” said the IEA.
Supply from outside the OPEC+ group is expected to grow by 1.7 million BPD in 2022, of which the U.S. will account for almost 60 per cent.
“OPEC+ can still pause, continue or even reverse its curbs as required by the market, and it looks unlikely that the unwinding of cuts will continue on a linear trajectory in 2022,” the agency said.