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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Global Oil Demand Could Reach New Heights In 2022

  • Many forecasters, including BP, in 2020 argued that peak oil was already past us
  • Investment bank analysts seem to overwhelmingly expect higher prices because of strong demand and not-so-strong supply
  • Next year will see even stronger oil demand, even with a temporary dip during the first quarter
Oil Demand

Oil demand suffered a severe blow last year when the initially ignored coronavirus in China spread around the world and started prompting lockdowns. Then the wave receded, and oil demand began to rebound, much faster than most expected. Despite the green transition push, demand will continue to recover into next year, too, and those after it. Many forecasters, including BP, in 2020 argued that peak oil was already past us and what we had to look forward to was a more renewable energy mix. And then Covid-19 case numbers in key markets began to decline, and oil demand began to rise. Since then, demand has rebounded so strongly that it has led forecasts to start warning of the possibility of a shortage.

Saudi Arabia recently warned that underinvestment in new oil and gas production would lead to higher prices and supply crunches.

"We're heading toward a phase that could be dangerous if there's not enough spending on energy," the Kingdom's Energy Minister, Prince Abdulaziz bin Salman said earlier this month. Insufficient investment could lead to an "energy crisis," he added. 

Banks are contributing to the discrepancy between demand forecasts and supply realities as they feel growing pressure to stop doing business with the oil and gas industry because of its carbon footprint. This may well exacerbate the energy crunch if such a crunch is indeed in the cards.

It probably is. Investment bank analysts seem to overwhelmingly expect higher prices because of strong demand and not-so-strong supply. Goldman Sachs' Damien Courvalin said earlier this month Brent crude could hit $100 next year. Morgan Stanley analysts slashed their first-quarter 2022 outlook for oil, citing omicron concerns but raised their third-quarter forecast to $90 per barrel of Brent, from $85 per barrel.

Canada's BMO Markets expects oil demand to hit a record next year and remain strong over the next few years as well despite a temporary dip in the first quarter, again because of the omicron variant of the coronavirus.

Speaking of omicron, OPEC has largely brushed off what others see as a new threat for global economies and oil demand. The cartel, in its latest Monthly Oil Market Report actually raised its demand forecast for the first quarter of next year, despite planned reserve releases by the United States, Japan, and South Korea, aimed at curbing the rally in oil prices that started in late 2020 and pushed benchmarks to highs of over $80 per barrel in October.

According to the cartel, the effect of omicron on oil demand will be "mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges."

Related: Cocaine, Guns And Gushers: Colombia’s Oil Industry Struggles To Reactivate

Goldman's Courvalin appears to agree with this view. "If this is another wave like the ones we've seen before then it is a negative hit to economic growth in the first quarter of 2022," he said recently, as quoted by Reuters. "But if there is a subsequent recovery, oil demand, which briefly touched pre-COVID levels in early November, would then be at new record highs for most of 2022."

If the previous Covid-19 waves are any indication, there will be a recovery after this wave, too. A potential problem would be the ability of suppliers to satisfy this demand beyond the short term. Investments in new oil production have indeed declined considerably, and many in the industry—chiefly the supermajors—are still wary of splashing on more oil and gas, so they splash instead on renewable power capacity.


This may play them a bad joke down the road, however. If the European energy crisis has taught us anything, it is the unpleasant fact that even green and sustainable Europe is still heavily dependent on fossil fuels. And Europe is not among the top consumers of oil—it's emerging Asia that has this pleasure, and all forecasts point towards this demand growing further in the coming years.

OPEC+'s spare capacity stood at 5.11 million bpd as of October this year, according to the U.S. Energy Information Administration. However, spare capacity is not static, and the October figure is actually a substantial decline from the start of 2021 when spare capacity in the extended cartel stood at 9 million bpd. And it could fall further to less than 4 million bpd by the end of next year.


This state of affairs prompted the International Energy Agency, a vocal proponent of the energy transition, to urge more investments in new oil production. Just how serious the situation could become because of this discrepancy shows in the fact that just months earlier, the IEA had called for an end to all new oil and gas investments so the world can reach its net-zero targets.

So it appears that next year will see even stronger oil demand, even with a temporary dip during the first quarter while we come to terms with the omicron variant. And while demand grows stronger, supply growth will continue to lag behind under ESG investor and government pressure. Oil markets are certainly in for an interesting year in 2022.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on December 29 2021 said:
    Strong global oil demand is projected to grow not only in 2022 but also well into the future until an alternative to oil as versatile and practicable as oil itself is developed or found. This is unlikely in the next hundred years.

    The rising global oil demand will be underpinned by two major factors: the first is the projected rise of the world’s population from the current 7.9 billion to 9.7 billion by 2050 and the second is the projected growth of the global economy from the current $91 trillion to $245 trillion by 2050.

    And while a deeper penetration of EVs into the global transport system and government legislations to ban the sale of ICEs sometime between 2035 and 2040 might slightly decelerate the rate of growth of demand, they will never ever succeed in arresting it.

    Environmental activists, the International Energy Agency (IEA) and BP are deluding themselves if they ever believe that global energy transition could cause global oil demand to decline or to peak throughout the 21st century and probably far beyond.

    While energy transition will continue to move forward, a total energy transition is an illusion. Even a partial one will never succeed without huge contributions from natural gas and nuclear energy. The European energy crisis has demonstrated to the world that Europe will continue to be dependent on fossil fuels well into the future. Moreover, Europeans are going to pay an additional $395 bn in energy bills in 2022 as a result of their hasty policy to accelerate energy transition endorsed by the hapless IEA at the expense of fossil fuels.

    Therefore, 2022 will see a continued rise in energy prices. Crude oil prices will recoup all their recent losses and resume their surge which could take Brent crude beyond $85 a barrel during the first quarter of 2022. However, a widening deficit in the global oil market resulting from underinvestment in oil and gas during the last two years could lead to $100 oil by the end of 2022 or the first quarter of 2023.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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