Resurgent Oil Supply Expected to Soothe Tight Market
Rebounding economic activity and natural gas shortages recently pushed the developed world’s oil reserves to their lowest since early 2015, but growing crude supply could soon ease that pressure, the International Energy Agency said Tuesday.
In its closely watched monthly market report, the IEA said that the tight supply and demand balance in the global oil market could be about to ease. It expects output to rise by 1.5 million barrels a day in the remainder of 2021, with the U.S., Saudi Arabia and Russia accounting for around half of that amount.
At the same time, while demand for transportation fuels continue to recover and a supply shortage in the natural gas market has forced some power plants to switch to using oil and refined products, “new Covid waves in Europe, weaker industrial activity and higher oil prices will temper gains,” the Paris-based energy watchdog said.
Oil prices rose early Tuesday, recouping some of their losses that followed speculation that the U.S. would tap its Strategic Petroleum Reserves for extra supply. With the U.S. Energy Information Administration also forecasting growing supply from 2022, “it is not clear whether the Biden administration will still feel that it is necessary to take action,” said ING analyst Warren Patterson.
Brent crude oil, the global benchmark, was up 0.8% at $82.73 a barrel and U.S. crude futures were up 0.6% at $81.41 a barrel.
The price of crude has risen to its highest since 2014 in recent months. Resurgent economic activity and the gas crisis have prompted energy importing nations, such as the U.S., to unsuccessfully urge the Organization of the Petroleum Exporting Countries and its allies to speed up plans to relax curbs set up at the beginning of the pandemic.
Those dynamics have seen wealthy countries in the Organization for Economic Cooperation and Development use the supply gluts they built up during lockdowns and then some—their stocks haven’t been this low in almost seven years. Now, though, “preliminary data and satellite observations of stock changes in October suggest the tide might be turning,” the IEA said.
The watchdog expects oil production to continue increasing after the end of 2021 as well, raising its 2022 forecast by 100,000 barrels a day to 1.9 million barrels a day. A combination of rising output from the Gulf of Mexico, where supply was severely affected by Hurricane Ida earlier in 2021, and fewer overall outages—the pandemic has meant more downtime and affected maintenance schedules—will drive that increase, the IEA’s report said.
The report said rising output, particularly from the U.S.—which the IEA expects to account for 60% of the non-OPEC+ supply increase—will go some way to meet rising demand, with vaccination campaigns allowing travel to continue to rebound, driving exceptional strength in gasoline demand and setting jet-fuel demand on a course to reach around 80% of 2019 levels by the end of next year.