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Oil Market Report Summary - 11 February 2022

Core Content

The Oil Market Report for 11 February 2022 provides an analysis of global oil supply, demand, refining activity, stock levels, and pricing trends. It highlights the ongoing challenges and shifts in the market due to geopolitical tensions, supply constraints, and the lingering effects of the pandemic.

Main Points

Supply Trends

• Global Oil Supply: Increased by 560 kb/d in January to 98.7 mb/d, but the uptrend was hampered by OPEC+ underperformance.
• OPEC+ Output: Continued to underperform by 900 kb/d in January, and since the start of 2021, has taken 300 mb of oil off the market.
• OPEC+ Spare Capacity: If output gaps are fully resolved, world oil output could rise by 6.3 mb/d in 2022, but effective spare capacity could fall from 5.1 mb/d to 2.5 mb/d by year-end.
• Iranian Supply: If sanctions are lifted, an additional 1.3 mb/d of Iranian crude could enter the market.
• Non-OPEC+ Supply: Expected to add 2 mb/d in 2022, with Canada, Brazil, and Guyana contributing an additional 460 kb/d.

Demand Outlook

• Global Oil Demand: Projected to increase by 3.2 mb/d in 2022, reaching 100.6 mb/d, driven by easing pandemic restrictions.
• OPEC+ Demand: The baseline demand for Saudi Arabia and China has been revised upwards by nearly 800 kb/d, primarily due to LPG use and petrochemical sector activity.
• OECD Demand: Expected to grow by 1.6 mb/d in 2022 to 46.2 mb/d, remaining 1.45 mb/d below 2019 levels.
• Non-OECD Demand: Projected to grow by 1.6 mb/d in 2022, to 54.3 mb/d, a slowdown from 3 mb/d in 2021.
• Impact of Omicron: Restricted transport fuel use in early 2022, but mobility is expected to recover as the virus subsides.

Refining Activity

• Global Refining Output: Set to increase by 3.8 mb/d in 2022, but still lags behind demand growth.
• Refinery Margins: Under pressure due to closures and higher energy costs.
• Product Cracking: Gasoil and other products have seen strong demand, reflecting tightness in the product market.

Stock Levels

• OECD Industry Stocks: Declined by 60 mb in December, reaching 2680 mb, or 355 mb below the 2021 level, and at their lowest in seven years.
• Stock Coverage: Only 59.6 days of forward demand, a decrease of 0.9 days from the previous month and 3.2 days below the historical average.
• January Stock Changes: OECD stocks fell by an additional 13.5 mb.
• Non-OECD Stocks: Also showed declines, though specific figures were not detailed.

Price Movements

• Crude Oil Prices: Surged by ~15/bbl in January, breaching the $90/bbl threshold for the first time since 2014.
• Backwardation: Present in the 12-month strip for both WTI and Brent, reflecting low stock levels.
• Brent Prices: Expected to rise from $70.60/bbl in 2021 to an average of $86/bbl in 2022.
• Product Prices: Remain at a premium relative to crude, with gasoil seeing particularly strong demand.

Key Information

Supply and Demand Balance

• Supply Gap: OPEC+ underperformance has led to a significant supply gap, with the bloc’s output lagging by 900 kb/d in January.
• Market Tightness: Expected to persist as OPEC+ struggles with production constraints and the global supply remains constrained.
• Demand Recovery: Easing restrictions and gas-to-oil switching have supported demand, particularly in Europe and China.
• OECD Deficit: OECD oil demand is projected to remain 1.45 mb/d below 2019 levels in 2022.

Regional Analysis

• OECD Americas:
  • US oil demand rose in November but declined in December and January.
  • Gasoline and gasoil demand showed seasonal fluctuations.
  • Projected to grow by 510 kb/d in 2022, with a narrowing gap versus 2019 levels.
• OECD Europe:
  • Gasoil demand remained strong despite seasonal declines.
  • Fuel oil demand increased due to gas-to-oil switching.
  • Projected to grow by 520 kb/d in 2022, with strong transport fuel demand.
• OECD Asia & Oceania:
  • Demand growth was strong in 2021 and is expected to continue in 2022.
  • Jet kerosene and gasoil saw significant growth.
  • Projected to increase by 255 kb/d in 2022, narrowing the gap versus 2019 levels.
• Non-OECD:
  • Demand growth is expected to slow from 3 mb/d in 2021 to 1.6 mb/d in 2022.
  • Mobility and economic activity are recovering, but Omicron has had some impact on demand in key countries.

Conclusion

The report indicates a tightening oil market driven by OPEC+ underperformance, reduced spare capacity, and strong demand recovery. Prices have surged, and product markets remain tight, with gasoil and LPG showing particular strength. The outlook for supply and demand in 2022 remains cautiously optimistic, with potential for a market shift to surplus if OPEC+ output gaps are resolved. However, geopolitical risks and supply constraints continue to pose challenges.