Delta Variant Dents Oil Demand Recovery While OPEC Expects More Supply

Delta Variant Dents Oil Demand Recovery While OPEC Expects More Supply

Rising OPEC+ supply and new Covid-19 restrictions ease global supply crunch fears, the IEA says

The economic impact of the Covid-19 Delta variant and rebounding output mean that expectations of global oil demand outstripping supply are fading, the IEA and OPEC said Thursday.

In its closely watched monthly market report, the International Energy Agency 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. Both the IEA and OPEC expect the world’s thirst for oil to return to pre-pandemic highs in the second half of next year.

The Paris-based IEA said 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.”

OPEC, in its own report, significantly upgraded supply-growth estimates for its non-cartel counterparts for both 2021 and 2022. The Vienna-based cartel raised its 2022 supply-growth forecast by 840,000 barrels a day to 2.9 million barrels a day.

While OPEC expects Russia to increase its production by a million barrels a day next year, it said “the U.S., with year-on-year growth of 0.8 million barrels a day, together with Brazil, Norway, Canada and Guyana, will be the other key drivers.”

Oil prices suffered a 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 Thursday, with Brent crude oil—the global benchmark—up 0.1% to $71.51 a barrel and West Texas Intermediate futures, a key U.S. gauge, flat at $69.23 a barrel. Both benchmarks are down 5% and 6% respectively this month, with the price rally seen in much of 2021 foundering, largely due to worries about the Delta variant.

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.

Analysts have reacted to the White House’s remarks on OPEC production with skepticism and suggest it is unlikely the cartel will accelerate the pace at which it will relax production cuts.

“There will be quite a lot of reluctance from the Saudis and the broader group to increase output further, particularly given continued uncertainty over the spread of the Delta variant,” said Warren Patterson, head of commodities strategy at Dutch bank ING.

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 IEA 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.

With the recent inauguration of new Iranian President Ebrahim Raisi, all branches of power in Iran are under the control of hard-liners for the first time in several years. The status of nuclear talks and the White House’s comments on OPEC this week can be seen in that context, analysts said.

The remarks may be “an indication that a U.S.-Iran nuclear deal is less likely, and that Iranian production will not return to the market any time soon,” said Helge Andre Martinsen, senior oil market analyst at DNB Markets. es un sitio web oficial del Gobierno Argentino