Released December 21, 2021 | GALWAY, IRELAND
en
Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The global oil and gas industry could be facing a demand drop of up to 2.9 million barrels of oil per day (BBL/d) in the coming months due to the rapidly spreading Omicron variant of the COVID-19 coronavirus.
Energy analysts at Rystad Energy have predicted that oil demand could slip from an expected 99.1 million BBL/d to 97.8 million BBL/d in December 2021 alone--down 1.3 million BBL/d--if the variant spreads rapidly, causing a rise in COVID cases and the reintroduction of widespread travel restrictions and lockdowns. Demand could slide even further in January 2022 by up to 4.2 million BBL/d.
The variant--considered to be less severe than other strains--is already causing partial lockdowns in some leading countries including the Netherlands and Norway. Potential or partial lockdowns are being predicted for Denmark and the U.K. as Omicron becomes the fastest growing COVID-19 variant, just months after being discovered in South Africa. Omicron is now reported in more than 60 countries and poses a "very high" global risk, according to the World Health Organization (WHO).
"The likelihood of increasing lockdowns in the coming months has risen dramatically due to the new Omicron variant, and this will undoubtedly impact global oil demand," said Claudio Galimberti, senior vice president of analysis at Rystad Energy. "Given the early stage of the variant outbreak and the unknowns related to contagiousness and vaccine efficacy, we can only hope this scenario turns out to be a false alarm. Still, if the risk is real, the oil market will need to recalibrate accordingly."
Rystad believes that the full-year impact will "likely be less severe" as countries and governments learn to live with Omicron, or vaccine manufacturers adapt existing shots to counter the variant. Average 2022 demand would fall to 98 million BBL/d, a drop of 2.1 million BBL/d against its current base case, or "mean" scenario. Galimberti highlighted that in late November, oil demand growth was so strong that even a co-ordinated strategic petroleum reserve release from major oil-importing countries did nothing to quell bullishness surrounding oil prices. He added: "However, after governments went on high alert, the price of oil later collapsed by more than 10% as the demand downside is vastly different".
In the first quarter of 2022, demand for gasoline could fall by up to 1.3 million BBL/d to 24.2 million BBL/d, a 5% decrease from the base levels of 25.5 million BBL/d. Jet fuel demand would also be "significantly impacted as demand for flights and travel slows." Estimates show jet fuel demand could drop 6% in the first quarter of 2022 from the expected 5.5 million BBL/d to 5.2 million BBL/d. The second and third quarters would see a deeper plunge, dropping 10% in the second quarter from 6.1 million BBL/d to 5.6 million BBL/d, and 11% in the third quarter from 7 million BBL/d to 6.2 million BBL/d.
On a global level, Rystad said that countries and regions will continue to react differently to the pandemic. It predicts that countries in North America and South America--such as the U.S., Brazil and Argentina--will likely try to weather the storm and prioritize economic activity. Countries such as China and Australia have in the past displayed a zero-tolerance approach and are expected to continue with this strategy amid future waves. "European and Middle Eastern governments are likely to fall in between these two extremes as they try to find equilibrium between economic activity and preserving the health and safety of their populations," Rystad stated.
In related news, the International Energy Agency (IEA) claimed that the surge in new COVID-19 cases will "temporarily slow, but not upend, the recovery in oil demand that is underway." Global oil demand is forecast to grow by 5.4 million BBL/d in 2021 and a further 3.3 million BBL/d next year, when it rebounds to pre-COVD levels at 99.5 million BBL/d. It stated in its Oil Market Report for December that new containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous COVID waves, not least because of widespread vaccination campaigns. It estimates that demand for road transport fuels and petrochemical feedstocks will continue to post healthy growth. However, due to new restrictions on international travel, it has revised down its global oil demand forecast for 2021 and 2022 by 100,000 BBL/d on average, primarily to account for reduced jet fuel use.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
Energy analysts at Rystad Energy have predicted that oil demand could slip from an expected 99.1 million BBL/d to 97.8 million BBL/d in December 2021 alone--down 1.3 million BBL/d--if the variant spreads rapidly, causing a rise in COVID cases and the reintroduction of widespread travel restrictions and lockdowns. Demand could slide even further in January 2022 by up to 4.2 million BBL/d.
The variant--considered to be less severe than other strains--is already causing partial lockdowns in some leading countries including the Netherlands and Norway. Potential or partial lockdowns are being predicted for Denmark and the U.K. as Omicron becomes the fastest growing COVID-19 variant, just months after being discovered in South Africa. Omicron is now reported in more than 60 countries and poses a "very high" global risk, according to the World Health Organization (WHO).
"The likelihood of increasing lockdowns in the coming months has risen dramatically due to the new Omicron variant, and this will undoubtedly impact global oil demand," said Claudio Galimberti, senior vice president of analysis at Rystad Energy. "Given the early stage of the variant outbreak and the unknowns related to contagiousness and vaccine efficacy, we can only hope this scenario turns out to be a false alarm. Still, if the risk is real, the oil market will need to recalibrate accordingly."
Rystad believes that the full-year impact will "likely be less severe" as countries and governments learn to live with Omicron, or vaccine manufacturers adapt existing shots to counter the variant. Average 2022 demand would fall to 98 million BBL/d, a drop of 2.1 million BBL/d against its current base case, or "mean" scenario. Galimberti highlighted that in late November, oil demand growth was so strong that even a co-ordinated strategic petroleum reserve release from major oil-importing countries did nothing to quell bullishness surrounding oil prices. He added: "However, after governments went on high alert, the price of oil later collapsed by more than 10% as the demand downside is vastly different".
In the first quarter of 2022, demand for gasoline could fall by up to 1.3 million BBL/d to 24.2 million BBL/d, a 5% decrease from the base levels of 25.5 million BBL/d. Jet fuel demand would also be "significantly impacted as demand for flights and travel slows." Estimates show jet fuel demand could drop 6% in the first quarter of 2022 from the expected 5.5 million BBL/d to 5.2 million BBL/d. The second and third quarters would see a deeper plunge, dropping 10% in the second quarter from 6.1 million BBL/d to 5.6 million BBL/d, and 11% in the third quarter from 7 million BBL/d to 6.2 million BBL/d.
On a global level, Rystad said that countries and regions will continue to react differently to the pandemic. It predicts that countries in North America and South America--such as the U.S., Brazil and Argentina--will likely try to weather the storm and prioritize economic activity. Countries such as China and Australia have in the past displayed a zero-tolerance approach and are expected to continue with this strategy amid future waves. "European and Middle Eastern governments are likely to fall in between these two extremes as they try to find equilibrium between economic activity and preserving the health and safety of their populations," Rystad stated.
In related news, the International Energy Agency (IEA) claimed that the surge in new COVID-19 cases will "temporarily slow, but not upend, the recovery in oil demand that is underway." Global oil demand is forecast to grow by 5.4 million BBL/d in 2021 and a further 3.3 million BBL/d next year, when it rebounds to pre-COVD levels at 99.5 million BBL/d. It stated in its Oil Market Report for December that new containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous COVID waves, not least because of widespread vaccination campaigns. It estimates that demand for road transport fuels and petrochemical feedstocks will continue to post healthy growth. However, due to new restrictions on international travel, it has revised down its global oil demand forecast for 2021 and 2022 by 100,000 BBL/d on average, primarily to account for reduced jet fuel use.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
