The world uses a lot more oil than we thought


The group released its latest monthly report on Friday, revising its historic oil demand figures since 2007. Yes, it’s true, over the past 15 years the world has used more oil than the leading agency thought. watchdog that advises consumer governments. .

The changes are not small. At 2.9 billion barrels, the additional demand they have just found is equivalent to five times the strategic oil reserve of the United States, or an entire year of consumption in France, Germany, Italy, Spain, the UK and Mexico.

Unsurprisingly, the revisions were made to petroleum products and to some of the least transparent sectors of the oil balance sheet – the petrochemical industries in Saudi Arabia and China.

That doesn’t make them unimportant. Petrochemicals is the fastest growing sector in the medium term oil demand forecast and it is an area that has seen rapid expansion during the Covid-19 pandemic due to an increase in demand personal protective equipment and packaging that has accompanied the boom in online sales. purchases.

The impact on global oil inventory estimates during the pandemic is stark.

The 660 million barrels of excess inventory the IEA saw a month ago has evaporated. The demand revisions mean the agency now estimates that global oil inventories have fallen below their level in late 2019 to early 2022.

And this may not be the end. Inventory data for OECD countries suggests that there may be further demand revisions to come from the IEA.

Commercial oil inventories among the group’s developed member economies fell by 60 million barrels in December, and early estimates suggest they fell further last month. This contrasts sharply with warnings from Saudi Energy Minister Prince Abdulaziz bin Salman that the oil balance would swing from a deficit to a surplus in the last month of 2021.

The fact that the oil market is still tighter than forecasts indicate will not come as a huge surprise to those who have followed the rise in prices over the past two years. In a remarkable parallel to the oil crisis of 2007-2008, the trajectory of Brent oil prices has almost exactly matched that of the previous period during the post-pandemic recovery.

The only significant divergence came after US President Joe Biden threatened, then released, a release of oil from the Strategic Petroleum Reserve when the OPEC+ group of oil producers refused to open its taps any sooner. The relief was short-lived, and by the end of January oil prices had returned to where they were at the same point in 2008.

How long they continue on their upward trajectory may depend on whether the US shale patch or a revival of the Iran nuclear deal comes to the rescue.

It has been clear for many months that the OPEC+ group is unable to add the supply it continues to promise. The latest analysis from my colleagues at BloombergNEF shows that 15 of 19 countries with production targets missed them in January. Production from the 13 OPEC countries rose by just 65,000 barrels a day last month, a quarter of the expected increase.

The supply will therefore have to come from elsewhere. The US Energy Information Administration is increasingly optimistic about the shale sector. Earlier this month, it raised its domestic production forecast by an additional 200,000 barrels per day for the second half of 2022 and most of 2023. It now sees production approaching its pre-pandemic peak. here at the end of next year.

A quicker source of additional supply could be a return to the 2015 Iran nuclear deal that could quickly unlock 1.3 million barrels a day of output from the Persian Gulf country, enough to overturn oil price forecasts. exceeding $100 a barrel later this year. The Biden administration says a deal with Iran is now in sight, but rapid progress on the Islamic Republic’s nuclear program means the window for reviving the deal is shrinking.

Without these increases in production, however, the market will have to be rebalanced by destroying demand. High oil prices, which help fuel inflation, will inevitably start to slow demand growth, but the higher prices go, the more they will fall.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Julian Lee is an oil strategist for Bloomberg. Previously, he worked as a senior analyst at the Center for Global Energy Studies.

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