The International Energy Agency on Aug. 11 hiked its 2022 oil demand growth estimate by 380,000 b/d to 2.1 million b/d, citing "soaring" oil use in power generation and gas-to-oil switching in industry prompted by the Ukraine crisis and surging gas prices.
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Register NowThe unusually large revision in the IEA's latest monthly report — following a cut in its growth estimate the previous month — reflects "extraordinary" increases in Europe and the Middle East, particularly Iraq and Saudi Arabia, although it added the revision masked weakness in some sectors and growth is set to almost peter out as the year advances, with Q4 demand growing just 40,000 b/d year on year.
The increase in the IEA's 2022 growth estimate contrasts with the US Energy Information Administration on Aug. 9 lowering its demand estimates for 2022 and 2023 due to a more subdued economy, although the EIA's 2022 growth estimate matches the new IEA estimate of 2.1 million b/d.
OPEC meanwhile cut its 2022 demand growth estimate on Aug. 11 to 3.1 million b/d from 3.4 million b/d, citing likely renewed COVID-19 restrictions and "geopolitical uncertainties."
For 2023 the IEA kept its demand growth estimate unchanged at 2.1 million b/d, with 2023 demand now set at 101.8 million b/d, up from 101.3 million b/d previously.
The IEA also raised its estimates of the "call" for OPEC-plus crude for each quarter of 2022, with a full-year upward revision of 700,000 b/d, while lowering its 2023 estimates.
"With several regions experiencing blazing heatwaves, the latest data confirm increased oil burn in power generation, especially in Europe and the Middle East, but also across Asia," the IEA said.
"A looming natural gas crunch in Europe is already incentivizing substantial gas-to-oil demand substitution," it said, suggesting the situation could persist to at least the end of 2023.
"EU members have committed to reducing their demand for gas by 15% from August 2022 to March 2023. We estimate that this will increase oil consumption by roughly 300,000 b/d for the next six quarters."
"Industrial consumers, particularly refiners, can replace a great deal of gas use with oil," the IEA added, estimating such switching would boost fuel oil demand by 150,000 b/d and gasoil demand by 140,000 b/d.
Russia supply
On the supply side, the IEA said world oil output had reached a post-pandemic high of 100.5 million b/d in July on the back of production returning from maintenance in Canada, Kazakhstan and the North Sea, estimating production would rise by another 1 million b/d by the end of the year.
It described the latest agreed output increase by OPEC+ countries as "symbolic" and cautioned that substantial further OPEC+ increases might be "unlikely in the coming months."
On Russia, the IEA raised its production estimate for the second half of the year by 500,000 b/d on signs of sanctions being more limited in their impact than expected as flows are redirected to non-sanctioning countries. It highlighted expectations of sanctions biting more deeply later in the year, with an EU embargo due to take effect in December, but also discussion among politicians of possible moves to soften sanctions.
S&P Global Commodity Insights earlier reported that Russian oil exports from the Far Eastern port of Nakhodka near Vladivostok were on track to hit a four-year high in August of 558,000 mt, reflecting the redirection of flows away from sanctioning countries.
Russian oil exports "to the US, UK, EU, Japan and Korea have slumped by nearly 2.2 million b/d since the outbreak of the [Ukraine] war, two-thirds of which have been rerouted to other markets," the IEA said.
"Asian buyers have stepped in to take advantage of cheap crude importing higher volumes," it said, estimating Russian oil production in July was only 310,000 b/d below levels before the invasion of Ukraine.
On oil stocks, the IEA said globally "observed" inventories had fallen by a marginal 5 million barrels in June, with OECD industry stocks increasing by 6.2 million barrels to 2.68 billion barrels, but remaining 292.1 million barrels below the five-year average.
However, it also noted government stock releases among IEA members was helping ease oil prices.