Tighter oil market confirmed by IEA demand revision

An upward revision in historical oil demand by the International Energy Agency in its monthly report points to a tighter global market than the West’s energy watchdog had previously estimated.

“Our balances are now more in line with observed market fundamentals, which underpin the view of traders. We believe the tighter balance for 2021 and 2022 is already reflected in the price of oil and the forward curve,” the IEA told Reuters.

Oil prices have powered toward $100 a barrel in 2022 as fuel demand recovers from a pandemic crash, in a rally that has driven up energy costs worldwide, forcing some businesses to cut output and draining cash from consumers’ pockets.

The IEA on Friday revised up its baseline estimate of global demand by nearly 800,000 barrels per day (bpd), just under 1% of the 100 million bpd global oil market, after reassessing the petrochemicals demand in China and Saudi Arabia back to 2007.

Both countries consumed more of the light oil, known as natural gas liquids, that is produced in association with gas. The IEA said the revision helped explain the historical difference between observed and implied inventory changes.

While the Paris-based IEA did not alter its outlook on the pace of economic recovery, the bump in historical assumptions means 2021 demand outstripped supply by 2.1 million bpd.

The change also indicates demand for oil just about recovered to a pre-pandemic high of 100.3 million bpd in the fourth quarter, closer than in the previous forecast. A full demand rebound remains expected in the third quarter of 2022.

“What the demand revision means is that some … looking at the IEA database as input for their analysis will see a tighter oil market, resulting in a different assessment how to position,” Giovanni Staunovo, commodity analyst at UBS, said.

“Emerging markets account for more than 50% of oil demand, where data is less transparent and their demand keeps rising faster than in OECD countries. Unsurprisingly all energy agencies have different numbers,” he added.