The 5 Main Sources of Oil Demand Disappointment

The 5 Main Sources of Oil Demand Disappointment
Analysts at Standard Chartered think there are five main sources of demand disappointment.

In April, analysts at Standard Chartered forecasted that global oil demand would reach parity with the equivalent 2019 month in December and rise above 100 million barrels per day for the first time since the start of the pandemic.

Eight months on, that forecast appears too optimistic, Standard Chartered analysts stated in a report sent to Rigzone earlier this week.

“There are 2.2 million barrels per day of disappointment, the extent to which we now expect demand to undershoot the 2019 baseline,” the analysts stated in the report.

“We think there are five main sources of demand disappointment; weather, limited substitution from gas, slowing economic recovery, the Delta variant and the Omicron variant,” the analysts added in the statement.

In their latest report, the Standard Chartered analysts noted that market fears of a colder than normal northern hemisphere winter have not materialized and that substitution from gas into oil in Asia and Europe has been less than expected.

“We had thought it would average 0.7 million barrels per day but we now think 0.3 million barrels per day is a better estimate,” the analysts said.

The analysts also stated that a slowdown in the pace of economic recovery has created a drag on oil demand, with disappointing data from the main consuming countries, and added that the latest wave of the Delta variant in Europe has led to falls in mobility and demand.

Standard Chartered analysts also said that the rapid spread of the Omicron variant has already affected consumer behaviour and added that government reactions are likely to reduce mobility and deepen the demand disappointment in the first quarter of next year.

“For the oil market to be unusually tight in the fourth quarter required demand to surprise to the upside; it has instead disappointed, and the demand prospects for the first quarter are downbeat,” the analysts said.

“We expect demand to decline 0.9 million barrels per day quarter on quarter in the first quarter,” the analysts added.

On Tuesday, the U.S. Energy Information Administration revealed that it had revised down its forecast of consumption of petroleum and liquid fuels for the fourth quarter of 2021 and the first quarter of 2022, “partly as a result of recently announced travel restrictions following reported outbreaks of the Omicron variant of Covid-19”.

Last week, Rystad Energy warned that if the new Omicron variant of Covid-19 spreads rapidly, oil demand could fall to 97.8 million barrels per day in December 2021 and to 94.2 million barrels per day in January next year.

On November 26, the World Health Organization (WHO) designated the B.1.1.529 Covid strain as a variant of concern named Omicron. The B.1.1.529 variant was first reported to WHO from South Africa on November 24.

Globally, as of December 8, 3.20pm CET, there have been 266.5 million confirmed cases of Covid-19, with 5.2 million deaths, according to the latest WHO figures. As of December 6, a total of 7.9 billion vaccine doses have been administered, WHO data shows.

According to the latest information from WHO, global Covid cases have increased for the last seven consecutive weeks. Deaths are shown to have increased in five of the last seven weeks.

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