Vaccines to spark oil demand growth- IEA

Vaccinations for Covid-19 are set to deliver a major boost for oil demand as concerns about the passage of the delta variant start to ebb. 

“Already signs are emerging of Covid cases abating with demand now expected to rebound by a sharp 1.6 mb/d in October, and continuing to grow until end-year,” the International Energy Agency (IEA) said on Tuesday. 

Global oil demand is now expected to rise by 5.2m bpd this year and by 3.2m bpd in 2022. 

Unexpected outages during August forced a decline in supply for the first time in five months, the IEA said, which extended the sharp drawdown in global oil stocks.  

“The most severe by far was Hurricane Ida, which wreaked havoc on the key US Gulf Coast oil producing region at the end of August, knocking 1.7 mb/d offline.” 

But concerns over delta and its impact on oil demand has kept prices in check. 

WTI rallied to $71 and Brent to above $74 as robust market fundamentals continue to underpin prices.  

And after being washed out in July and August, speculative positioning is looking more bullish. According to the CFTC, money managers raised their net long US crude futures and options positions in the week to Sep 7th.

Yesterday, OPEC said in its latest monthly report that it expects stronger demand for oil next year than previously forecast. OPEC is sticking with the 6m bpd increase in 2021 vs 2020 , with Q3 showing resilience despite the ongoing problems with the pandemic. The outlook for 2022 is bullish, with OPEC raising its oil demand forecast for next year by 900k bpd from last month’s outlook, taking the expected demand growth in 2022 to 4.2m bpd.  

Nat gas crunch 

Last week saw natural gas prices continue to roof with $5 breached as a combination of low supply, low stocks and strong demand creates upward pressure. About three-quarters of Gulf of Mexico production remains offline following Hurrican Ida. 

Prices have doubled YTD and have hit the highest since February 2014. Now market participants worry that a colder-than-average winter in the US could see prices spike again. “Anything closer to [or colder than] a full standard-deviation form average would likely trigger a price spike to cause demand destruction with gas above $10/mmBtu,” Goldman Sachs analysts said in a note. 

European natural gas benchmarks keep hitting new highs, whilst Henry Hub natural gas prices were up another 4% to $5.20 on Monday, a fresh 8-year high and a 14-year high for this time of year. Demand for natural gas is actually growing but supply is failing to keep pace. 

In September’s Short Term Energy Outlook, however, the Energy Information Administration said it expects consumption of natural gas to decline in 2021 and 2022 from 2020 levels. “We forecast that consumption of natural gas will decline in all end-use sectors in the United States except in the industrial sector and for other non-sector-specific uses (lease and plant fuel, pipeline and distribution use, and vehicle use).The largest decline will occur in the electric power sector,” the report said.