The International Energy Agency (IEA) slightly raised its forecast for global oil demand in 2022, as soaring natural gas and electricity prices are causing greater gas-to-oil switching for power generation, which has contributed to offsetting the effect of slowing economic growth.
In its latest monthly Oil Market Report, IEA Oil raised our estimate for global oil demand this year to 99.7 million barrels a day.
Soaring oil use for power generation and gas-to-oil switching are boosting demand. “In this Report, we have raised our estimates for 2022 global demand growth by 380 kb/d, to 2.1 mb/d. Gains mask relative weakness in other sectors, and a slowdown in growth from 5.1 mb/d at the start of the year to less than 100 kb/d by 4Q22. World oil demand is now forecast at 99.7 mb/d in 2022 and 101.8 mb/d in 2023.”
World oil supply hit a post-pandemic high of 100.5 mb/d in July as maintenance wound down in the North Sea, Canada and Kazakhstan. OPEC+ ramped up total oil production by 530 kb/d in line with higher targets and non-OPEC+ rose by 870 kb/d. World oil supply is set to rise by a further 1 mb/d by year-end. The Report also revise up it forecast for Russian oil output but have lowered the outlook for North America.
Refinery throughputs rose by 1.1 mb/d in July and are set for a further 350 kb/d gain this month, when runs will reach their highest level since January 2020. The increase was above refined product demand, driving cracks and refinery margins sharply below the all-time highs seen in June. Global refinery runs are now on track to rise by 2.6 mb/d in 2022 and 1.3 mb/d next year.
Russian oil exports fell by 115 kb/d in July to 7.4 mb/d, from about 8 mb/d at the start of the year. Crude and oil product flows to the US, UK, EU, Japan and Korea have slumped by nearly 2.2 mb/d since the outbreak of the war, two-thirds of which have been rerouted to other markets. Export revenues fell from 21 bn in June to $19 bn in July, on both reduced volumes and lower oil prices.
Global observed inventories fell by a marginal 5 mb in June, with a drawdown in both OECD and non-OECD stocks partially offset by an increase in oil on water. OECD total industry stocks increased by 6.2 mb, to 2 681 mb but remained 292.1 mb below the five-year average. Government stocks released to the market totalled 33.8 mb in June, the largest drawdown since March.
Benchmark crude oil futures have sunk by around $30/bbl since a June peak as worsening economic prospects and oil demand growth weighed on sentiment. At the time of writing, Brent traded at around $97/bbl and WTI $92/bbl. Steadier forward prices flattened backwardation across the futures curve and prompt physical premiums eased.