A Tale of Two Forecasts: Investors back IEA’s hiked demand outlook over OPEC gloom
Investors have backed the International Energy Agency’s (IEA) outlook for oil demand over OPEC’s, with both organisations offering contrasting visions for the market this year.
The IEA argued that rising oil use for power generation in Europe and the Middle East will boost crude consumption for the rest of the year, despite signs of a wider economic slowdown.
It is predicting a 380,000 bpd increase in demand – with consumption demand expected to rise 2.1m bpd this year.
By contrast, OPEC slashed its forecast for growth in world oil demand this year for a third time since April, while the IEA hiked its demand expectations.
The cartel blamed the economic impact of Russia’s invasion of Ukraine, high inflation and efforts to contain the pandemic for reduced appetite in the liquid energy source.
In its monthly report, it said it expected 2022 oil demand to increase 3.1m barrels per day (bpd),
This is still above IEA forecasts, but it is 3.2 per cent down (260,000 bpd) from the predictions in its last monthly update.
The IEA’s report was published first this morning, and carried oil prices to strong gains earlier this morning, with Brent Crude closing in one the $100 milestone.
This was maintained following the OPEC report, suggesting support from investors on the IEA’s view on demand.
Brent Crude is still up 1.42 per cent, trading at $98.82 per barrel, while WTI Crude enjoyed a 1.56 per cent bounce to $93.36.
Meanwhile, the IEA revealed the impact of western sanctions on Russian oil exports had been less severe than it had previously forecast.
The IEA expects that the EU’s commitment to reduce member countries’ gas consumption 15 per cent from August 2022 to March 2023 will also raise oil demand by roughly 300,000 bpd for the next six quarters.
These gains would be overwhelmingly concentrated in the Middle East and Europe, obscuring production shortages in other countries.
OPEC has persistently missed its raised output targets this year, with the organisation citing capacity issues, underinvestment and Russian shortages.
It revealed that OPEC output in July rose by 162,000 bpd to 28.84m bpd, a smaller increase than pledged.
The cartel suggested Russia’s exports of crude and oil products to Europe, the US, Japan and Korea had fallen by nearly 2.2mn bpd since the start of the war in Ukraine.
However, the rerouting of flows to countries including India, China and Turkey, along with seasonally higher Russian domestic demand, had “mitigated upstream losses.”
This meant Russian oil production was only 310,000 bpd below its pre-invasion levels last month.
The EU embargo on seaborne shipments of oil Russian oil is expected to result in further declines after it comes into full effect next year.