Oil Demand Gets Fuel Switching Boost

Oil Demand Gets Fuel Switching Boost

by Andreas Exarheas|Rigzone Staff|Thursday, September 15, 2022

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Oil Demand Gets Fuel Switching Boost

The IEA now forecasts that world oil demand will hit 99.7 million barrels per day this year.

Soaring oil use for power generation and gas-to-oil switching are boosting demand.

That’s according to the International Energy Agency’s (IEA) latest oil market report, which raised the organization’s estimates for 2022 global oil demand growth by 380,000 barrels per day to 2.1 million barrels per day. The organization now forecasts that world oil demand will hit 99.7 million barrels per day this year.

“Rising oil supplies and escalating concerns over the deteriorating economic outlook have knocked around $30 per barrel off prices from a peak in June,” the IEA stated in its August oil market report.

“For product prices and refinery margins, the plunge has been even steeper as a sharp run-up in refinery activity collided with lackluster driving demand during the Northern Hemisphere summer season,” the IEA added.

At the same time, natural gas and electricity prices have soared to new records, incentivizing gas-to-oil switching in some countries, the IEA noted.

“With several regions experiencing blazing heatwaves, the latest data confirm increased oil burn in power generation, especially in Europe and the Middle East but also across Asia,” the IEA said.

“Fuel switching is also taking place in European industry, including refining. In this report, we have revised our forecast for world oil demand higher for the remainder of the year, but growth is nonetheless expected to slow from 5.1 million barrels per day in 1Q22 to a marginal 40,000 barrels per day by 4Q22,” the IEA added.

Oil Supply, Inventories

In its latest report, the IEA noted that the outlook for world oil supply has been revised upward, “with more limited declines in Russian supply than previously forecast”.

“While Russia’s exports of crude and oil products to Europe, the U.S., Japan and Korea have fallen by nearly 2.2 million barrels per day since the start of the war, the rerouting of flows to India, China, Türkiye and others, along with seasonally higher Russian domestic demand has mitigated upstream losses,” the IEA stated.

“By July, Russian oil production was only 310,000 barrels per day below pre-war levels while total oil exports were down just 580,000 barrels per day. The EU embargo on Russian crude and product imports that comes into full effect in February 2023 is expected to result in further declines, as some one million barrels per day of products and 1.3 million barrels per day of crude would have to find new homes,” the IEA added.

Builds global inventories are now projected at around 900,000 barrels per day during the rest of this year and 500,000 barrels per day over the first half of 2023, according to the IEA report.

“By end-June, around 150 million barrels of the volumes committed through IEA collective actions and individual IEA member SPR sales had yet to find its way to the market,” the IEA stated.

“With OECD industry stocks still some 290 million barrels below their five-year average, such builds could help ease market tensions. But with supply increasingly at risk to disruptions, another price rally cannot be excluded,” the IEA added.

July Report

In its previous oil market report, the IEA noted that higher prices and a deteriorating economic environment had started to take their toll on oil demand but added that strong power generation use and a recovery in China were providing a partial offset.

In that report, the IEA highlighted that global oil demand growth had been marginally reduced to 1.7 million barrels per day in 2022, reaching 99.2 million barrels per day overall. World oil supply was said to have jumped by 690,000 barrels per day to 99.5 million barrels per day in June “as resilient Russian production and higher output from the U.S. and Canada more than offset steep maintenance-related losses from Kazakhstan”.

Global observed oil inventories were also said to have risen “by a modest five million barrels in May as a sharp increase in non-OECD crude stocks was offset by lower OECD stocks and oil on the water”.

“OECD industry stocks rose by 15.2 million barrels to 2,691 million barrels, still 301.3 million barrels below the 2017-2021 average, helped by the release of 32.1 million barrels of government stocks,” the July report stated.

To contact the author, email andreas.exarheas@rigzone.com