Agency foresees oil-demand slowdown

Surge by coronavirus variant prompts reversal in global outlook for rest of ’21

The International Energy Agency cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.

It’s a marked reversal for the Paris-based agency, which just a month ago was urging OPEC, Russia and their allies to open the taps or risk a damaging spike in prices. The oil cartel heeded calls to increase supply, which is now arriving just as consumption slackens.

The analysis also jars with Wednesday’s call from the U.S. — the energy agency’s most influential member — for the Organization of the Petroleum Exporting Countries and its allies to ramp up production faster.

“The immediate boost from OPEC Plus is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the agency said in its monthly report.

Oil prices have retreated 6% this month as the contagious delta variant triggers renewed lockdowns in China and other key Asian consumers where vaccination rates are lagging.

Brent futures were trading just over $71 a barrel Thursday, having hit a two-year high near $78 in early July.

The “recent rally has lost steam on concerns that a surge in covid-19 cases from the Delta variant could derail the recovery just as more barrels hit the market,” the International Energy Agency said.

The 23-nation OPEC Plus coalition led by Saudi Arabia and Russia agreed last month on a road map for restoring the rest of the oil supplies it shuttered when the pandemic emerged. The additional barrels are, however, starting to flow at an inauspicious moment.

Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the agency said. It lowered estimates for consumption in the second half of the year by 550,000 barrels a day.

Still, the agency predicts that world fuel use will continue to increase as the global economic recovery picks up, reaching an average of 98.9 million barrels a day in the last three months of this year.

The recovery achieved so far is already having unwanted side effects.

As U.S. motorists grapple with $3-a-gallon gasoline and fears over inflation, the Biden administration is insisting that OPEC Plus accelerate its supply increases. “At a critical moment in the global recovery,” OPEC’s plans are “simply not enough,” national security adviser Jake Sullivan said in a statement Wednesday.

The agency significantly bolstered forecasts for supplies outside of OPEC in 2022 as the U.S. and other producers recover from the pandemic slump in investment. The projection for non- OPEC output was increased by an average of 1.1 million barrels a day next year.

As a result, OPEC is already producing the volume of crude needed in 2022, the report showed.

With output at 26.7 million barrels a day in July, proceeding with plans to restore more production will likely tip the market back into oversupply.

“The scale could tilt back to surplus in 2022 if OPEC Plus continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices,” the agency said.