OPEC and the International Energy Agency (IEA) have differing views on the outlook for global oil markets. Now one would assume they would lean towards the OPEC outlook because, let’s face it, the International Energy Agency’s track record on predicting supply and demand has been abysmal.
Yesterday, OPEC came out and raised their demand expectations for next year and also warned oil speculators to beware of being short this market. If conditions change, OPEC warns, they will adjust their production output, yet at the same time, the International Energy Agency warns that there could be an oil surplus due to the Omicron virus.
Also, a report today by Pfizer (NYSE:PFE) came out in the Wall Street Journal that suggested Pfizer confirmed its COVID-19 pill was 89% effective in the late-stage study and said the antiviral drug could likely work against the Omicron variant.OPEC raised its estimates for consumption in the period by 1.1 million barrels a day. Reuters reports that OPEC said it expects world oil demand to average 99.13 million barrels per day (bpd) in the first quarter of 2022, up 1.11 million bpd from its forecast last month.
According to OPEC,
“Some of the recovery previously expected in the fourth quarter of 2021 has been shifted to the first quarter of 2022, followed by a more steady recovery throughout the second half of 2022.”
The IEA says, on the other hand, that the surge in new COVID cases is expected to slow the recovery in global oil demand, with air travel and jet fuel most affected. On average, oil demand has been revised down by around 100 kb/d since last month’s report for both 2021 and 2022. Global oil demand is now set to rise by 5.4 mb/d in 2021 and by 3.3 mb/d in 2022 when it returns to pre-pandemic levels at 99.5 mb/d.Global oil production is poised to outpace demand from December, led by growth in the US and OPEC+ countries. As this upward trend extends into 2022, the US, Canada, and Brazil look set to pump at their highest ever annual levels, lifting overall non-OPEC+ output by 1.8 mb/d in 2022. Saudi Arabia and Russia could also hit records if the remaining OPEC+ cuts are fully unwound. In that case, global supply would soar by 6.4 mb/d next year compared with a 1.5 mb/d rise in 2021.Refinery throughput surged by a hefty 1.9 mb/d in November and is forecast to rise by another 660 kb/d this month when it is set to breach the 80 mb/d threshold for the first time since the start of 2020. For 2021 as a whole, refinery runs are forecast to rise by 3.1 mb/d on average, recovering just 42% of 2020’s decline. Another 3.7 mb/d increase in throughputs is expected in 2022.The International Monetary Fund is warning that the Bank of England needs to withdraw its exceptional monetary policy and focus on the 12 to 24-month outlook as opposed to the short term concern about the Omicron virus. The UK has been the country that seems to be the most worried about this variant, even though most scientists say that the effects of this variant are mild.Saudi oil minister Prince Abdulaziz bin Salman suggested that OPEC, if need be, could cut output at a moment’s notice. He stated:
“So the meeting is truly not suspended. It continues to be in session. Thanksgiving was a Thanksgiving day for the speculators. But let them dare to do another Thanksgiving. They will be ouching like hell.”
I believe from a fundamental viewpoint the Saudi oil minister is correct. The selloff in oil around Thanksgiving was way overdone and everybody knows that and we have come back significantly from the lows and I believe we have a lot higher to go.
In the short term though, we definitely have some technical resistance and some concerns about the Omicron virus which is holding back a lot of those speculators at this point. If you look at the fundamental outlook, we should see oil inventories contract pretty dramatically in the coming weeks.
We believe that the oil products in recent weeks were overstated and we believe demand will start showing up in a big way as we get towards the end of the year. We would look at this as a great opportunity to put on long term bullish options strategies going into next year because we believe that this weakness in the oil market will be short-lived.Natural gas sold off hard after the predicted polar vortex looks like it could be breaking down. Yet in Europe prices continue to soar. Its geopolitical risk factors run high and the weather outlook in Europe looks very cold. Javier Blas of Bloomberg reported that the European natural gas benchmarks closed yesterday at a record high settlement price (intraday was higher in October). Dutch TTF closed at yesterday €116.084 per MWh and UK NBP closed at 294.54p per therm. That’s equivalent to ~$220 a barrel of oil.