Those advancing the notion of a rapidly approaching peak in oil demand will have to wait for another day, as the world regains its thirst for crude from last year’s pandemic-induced lows, according to public and private forecasts.
In its April Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) estimates global demand will average 97.7 million bpd this year, up 5.5 million bpd from 2020. The EIA estimates March consumption ramped up by 4.7 million bpd to 96 million bpd, compared to March 2020.
Also in April, the International Energy Agency (IEA), pointing to stronger-than-expected outlooks for the U.S. and China, expects 2021 oil and natural gas demand to increase year-over-year by 6.2% and 3.2%, respectively. The intergovernmental agency increased forecasts for U.S. demand by 370,000 bpd in the third quarter, following a predicted 360,000-bpd jump in the second quarter.
“The massive overhang in global oil inventories that built up during last year’s Covid-19 demand shock is being worked off, vaccine campaigns are gathering pace and the global economy appears to be on a better footing,” the agency said in its monthly report.
Meanwhile, the chief of Vitol Group, the world's leading independent oil trader, said increased demand will extend beyond this year and could jump by 7 million to 8 million bbl/day by the end of 2022 — an increase cash-strapped producers could be hard-pressed to meet. “We believe $70 to $75 a barrel is an entirely sensible outcome for the third quarter (2021),” CEO Russell Hardy told Bloomberg on April 20.
Therein lies a potential monkey wrench, should profit-starved operators choose to forgo capital discipline and capitalize on higher prices and spur another glut, warns Wood Mackenzie. “While prices over US$60/bbl will always be better for operators than US$40/bbl, it’s not all one-way travel,” Greig Aitken, a director of the energy consultant’s corporate analysis team, said in a note on April 19.“There are the perennial issues of cost inflation and fiscal disruption.
“Also, changing circumstances will make strategy execution more challenging, particularly as it relates to doing deals,” he continued. “And there’s the hubris that comes in every upswing, when stakeholders begin to regard hard-learned lessons as outdated views. This often leads to over-capitalization and underperformance.”
The Paris-based IEA agrees producers should be cautious when it comes to significantly disrupting the supply-demand equation. “Prices could yet come under renewed pressure in the coming months with world oil supply set to ramp up and shift the market from deficit toward balance,” the agency said.
Indeed, Aitken advises operators to remain pragmatic. “The blueprints for success at $40/bbl are still the blueprints for success when prices are higher.”