Oil demand is set to rise above pre-COVID-19 pandemic levels by the end of next year, the International Energy Agency (IEA) said yesterday, but producers have sufficient capacity rise to the challenge.
In its first detailed look at next year in its regular monthly review of the oil market, the agency sees a gradual return of demand as vaccine distribution widens and economic activity returns to normal in many countries and sectors.
“By end-2022, demand should surpass pre-COVID levels,” it said.
Oil demand tanked by a record 8.6 million barrels per day (bpd) last year, as countries shut down swathes of their economies as COVID-19 spread around the world.
The IEA expects it to rebound by 5.4 million bpd this year and a further 3.1 million bpd next year.
However, the Paris-based agency that advises oil-consuming nations warned that “the recovery will be uneven not only amongst regions, but across sectors and products.”
Demand is expected to recover faster in wealthy nations with earlier access to vaccines, while some sectors, such as aviation, lag as some travel restrictions remain in place and more people work from home than before.
“A widespread return of the global aviation industry to normal capacity appears off the cards until most countries have reached herd immunity, which may not happen until late 2022,” the IEA said.
It said the recent surge in cases in many developing nations should serve as a reminder that the pandemic is not over, noting that global oil demand dipped last month due to the outbreaks.
Moreover, it does not exclude new outbreaks from occurring as nations such as India are not expected to vaccinate a sufficient number of people until late next year, while many African countries have yet to order enough doses.
Oil demand is expected to climb in the coming months and “meeting the expected demand growth is unlikely to be a problem,” the IEA said.
It expects countries outside the OPEC+ group to boost output by 1.6 million bpd next year, exceeding 2019 levels.
Meanwhile, OPEC+ nations have 6.9 million bpd of spare capacity even after lifting production by 2 million bpd over the May-July period.
“Even if OPEC+ producers were to fill the gap created by demand growth, the bloc’s output would still be more than 2 million bpd below the 2019 average,” it said.
Members of the OPEC cartel and allies like Russia slashed production last year to boost and stabilize oil prices, which briefly dropped into negative territory.
OPEC+ is slowly increasing output as the global economy recovers, but at a rate where oil stocks are being slowly reduced.
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