Global oil's comeback seen to gain strength next year

NEW YORK • Global oil demand roared back this year as the world began to recover from the coronavirus pandemic.

Overall world consumption could potentially hit a new record next year despite efforts to bring down fossil fuel consumption to mitigate climate change.

Petrol and diesel use surged this year as consumers resumed travel and business activity picked up.

For next year, crude consumption is expected to reach 99.53 million barrels per day (bpd), up from 96.2 million bpd this year, according to the International Energy Agency (IEA). That would be a hair short of 2019's daily consumption of 99.55 million barrels.

It would put pressure on both the Organisation of Petroleum Exporting Countries (Opec) and the US shale industry to meet demand - after a year when major producers were surprised by the rebound in activity that overwhelmed supply and led to tight inventories worldwide.

Numerous members of the oil bloc have struggled to add to output, while the US shale industry has to deal with investor demands to hold the line on spending.

After beginning the year at US$52 a barrel, Brent crude rose as high as about US$86 before tailing off at the end of the year.

Forecasters say prices could resume their upward path unless supply rises by more than expected, with Bank of America researchers estimating that prices will average US$85 next year due to low inventories and a lack of spare capacity.

The unknown is the Omicron coronavirus variant, as numerous countries have reimposed travel curbs, which will hurt the aviation industry and consumption.

"If this is another wave like the ones we've seen before, then it is a negative hit to economic growth in the first quarter of 2022," said Mr Damien Courvalin, head of energy research at Goldman Sachs.

"But if there is a subsequent recovery, oil demand, which briefly touched pre-Covid-19 levels in early November, would then be at new record highs for most of 2022."

This year's rebound took suppliers by surprise, raising tensions between large producing countries and the world's biggest consumers like the US, China and India.

With petrol prices up sharply earlier this year, US President Joe Biden called for Opec and its allies - known as Opec+ - to boost overall output after restraining supply for months.

But Opec nations have struggled to raise output due to under-investment, as Reuters data showed the group was overcomplying with its production targets last month.

The US shale industry, similarly, has not responded to higher prices as it has done previously, bowing to investor pressure to restrain spending.

Overall US production averaged 11.2 million bpd this year, compared with a record of nearly 13 million bpd in late 2019, according to the US Energy Information Administration (EIA).

Canada, Norway, Guyana and Brazil should add supply in the coming year, said Rystad Energy's senior vice-president of analysis, Mr Claudio Galimberti.

US oil production is expected to average 11.9 million bpd for next year, according to the EIA.

Coronavirus cases are surging due to the highly contagious Omicron variant, and further outbreaks could slow the recovery in major economies.

The IEA and others have lowered expectations slightly, with the agency cutting its forecasts for this year and next by 100,000 bpd on average to account for lower air travel volumes.

REUTERS