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Picture: 123RF/PIX NOO
Picture: 123RF/PIX NOO

London — Oil supply will soon overtake demand as some producers are set to pump at or above all-time highs, the International Energy Agency (IEA) said on Wednesday, while demand holds up despite the spread of the Omicron coronavirus variant.

“This time around, the surge is having a more muted impact on oil use,” the Paris-based IEA said in its monthly oil report.

“While the steady rise in supply could see a significant surplus materialise in [the first quarter of 2022] and going forward, available data suggest that 2022 is starting off with global oil inventories well below pre-pandemic levels,” it said.

The US, Canada and Brazil are set to pump at record highs for the year while Saudi Arabia and Russia could also break their output records.

“World oil supply in 2022 has the potential for a massive Saudi-driven gain of 6.2 million barrels a day, provided the Opec+ alliance continues to unwind the remainder of its record 2020 supply cut.”

The alliance, which comprises Opec and other producers including Russia, is unwinding record output cuts implemented last year to counter a fall in demand caused by the pandemic.

Its plan calls for adding back 400,000 bbl/day of production per month to fully unwind the cuts by the end of September, though some countries are struggling to raise output. Opec+ fell 790,000 bbl/day short of its target.

Eased lockdown measures mean mobility remains robust, the IEA added, leading the energy watchdog to increase its oil demand estimate for last year and 2022 by 200,000 bbl/day.

“Supply disruptions and underperformance by Opec+ are tempering growth expectations for 2022,” it said.

But the IEA warned that with commercial oil and fuel stocks in OECD countries at their lowest levels in seven years, any dents in supply could render the oil market in 2022 volatile.

The impact could be greater, given that the increased output means the effective spare capacity of the group is reduced and is now centred in Saudi Arabia and the United Arab Emirates as some smaller Opec members face output issues.

Opec+ producers’ effective spare capacity by the second half of the year, excluding Iranian oil which is blocked by sanctions, could shrink to 2.6-million bbl/day, the IEA said.

Reuters

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