Providing coverage of Alaska and northern Canada's oil and gas industry
January 2022

Vol. 27, No.4 Week of January 23, 2022

ANS approaches $90

Unexpected strong demand, supply issues propel oil to seven-year highs

Steve Sutherlin

Petroleum News

North Slope crude rose 11 cents to close at $89.39 per barrel Jan. 19, while West Texas Intermediate popped $1.53 to close at $86.96 and Brent rose 93 cents to close at $88.44. WTI set a fresh seven-year high with its 1.8% rise on the day.

Traders bid prices higher as the omicron variant of COVID-19 increasingly appeared unlikely to destroy oil demand, while short-term disruptions impacted supply.

The gains added to sizzling price action Tuesday Jan. 18 and Friday Jan. 14. Jan 17 was a national holiday.

ANS leapt $1.82 higher Jan. 18 to close at $89.37, WTI jumped $1.61 to close at $85.43 and Brent lifted $1.45 to close at $87.51.

Aside from existing bullish market factors, Jan. 18 action was juiced by a drone attack the day before by Iran-aligned Houthis on targets in the United Arab Emirates. The drone attacks resulted in several deaths and destroyed tanker trucks near storage facilities owned by the Abu Dhabi National Oil Co.

On Jan. 14, ANS lofted upward $2.15 - a 2.5% gain - to close at $87.56. WTI jumped $1.70 to close at $83.82 and Brent rose $1.59 to close at $86.06.

The benchmarks had dropped slightly Jan. 13, coming off a fresh post-omicron high Jan. 12.

ANS has traded at a premium to Brent for weeks, indicating that Asian buying of Pacific cargoes continues to lessen price competition on the West Coast where ANS is sold.

A Jan. 18 Bloomberg report said, “markets have tightened in recent weeks due to stronger-than-expected demand and outages in OPEC+ producers including Libya, with buyers in Asia paying sharply higher premiums for spot cargoes.”

EIA says inventories to rise in 2022, 2023

The U.S. Energy Information Administration expects global oil production to overtake demand in 2022 and 2023, resulting in increasing global oil inventories, it said in its January 2022 Short-Term Energy Outlook. The January STEO is the first to include 2023 estimates.

Oil consumption has outpaced oil production for more than a year, the EIA said, adding that production has remained restrained because of production curtailments by OPEC+ members, investment restraint from U.S. oil producers, and other supply disruptions.

The situation has led to persistent withdrawals from global oil inventories and significant increases in oil prices, it said.

According to EIA estimates, global oil inventories have fallen for six consecutive quarters going back to the third quarter of 2020, declining at an average rate of 2.1 million barrels per day in the second half of 2020 and at an average rate of 1.4 million bpd in 2021.

The EIA expects global oil inventories will rise by an average of 0.5 million bpd in 2022 and by 0.6 million bpd in 2023 and that the inventory builds will put downward pressure on crude oil prices.

“However, oil market balances are subject to significant uncertainties during the forecast period, notably, the way in which the ongoing pandemic affects economic growth, oil demand, and the production decisions of OPEC+ members,” it said. “These factors, among others, could keep oil prices volatile.”

Slowing global economic growth translated into slowing global oil demand in the EIA’s forecast, it said, adding that it used assumptions that global GDP will increase by 4.5% in 2022 and by 3.9% in 2023, compared with an increase of 5.8% in 2021.

“As business activity and personal mobility increased through much of 2021, air travel remained the most affected segment of liquid fuels demand in 2021,” the EIA said. “Our forecast assumes air travel will increase throughout 2022 and into 2023, but it will continue to remain below pre-pandemic levels.” With jet fuel consumption below pre-pandemic levels, economic growth is expected to be the main driver of oil consumption growth, it said.

The EIA said its current price path reflects global oil consumption that increases by 4% in 2022 and by an additional 2% in 2023, but the forecast depends on the effect of potential new COVID-19 variants.

Supply chain disruptions and central bank activity may affect oil demand during the forecast period, it said.

IEA sees supply exceeding demand in 2020

The International Energy Agency has raised its demand estimates for 2021 and 2022, but it also expects oil supply to overtake demand in 2022, it said in its January Oil Market Report.

Despite omicron cases surging worldwide, oil demand defied expectations in fourth quarter 2021, rising by 1.1 million bpd to 99 million bpd, the IEA said, adding that in Q1 2022, demand is set for a seasonal decline, with more teleworking and less air travel.

The IEA raised its global demand estimates by 200,000 bpd in 2021 and 2022 - resulting in growth of 5.5 million bpd in 2021 and 3.3 million bpd in 2022, due to softer COVID restrictions.

In 2022, world oil supply has the potential for a Saudi-driven gain of 6.2 million bpd if OPEC+ fully unwinds its cuts, the IEA said.

Oil output from OPEC+ could rise this year by 4.4 million bpd, resulting in reduced effective spare capacity in the second half of 2.6 million bpd, held primarily by Saudi Arabia and the United Arab Emirates.

Non-OPEC+ growth of 1.8 million bpd in 2022 will be led by the United States, it said.

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