2022 crude oil supply-demand will be driven by several factors such as COVID-19 and its variants’ impact on demand and economy, falling OPEC+ spare capacity, and some countries inability to meet their production quota, non-OPEC production hike especially from the US and Brazil, the release from strategic petroleum reserves from several countries, lower upstream investment, risk of disruptions in Libya and Iran’s nuclear talks.
The energy transition efforts will also have an impact on the market in the medium term due to underinvestment, which will cause volatility in prices.
However, demand will be stronger in the second half of the year, driven by a more robust recovery in global jet fuel demand. While the Middle East, Asia, and Latin America will surpass 2019 throughput levels, the recovery in Europe and the US will continue to lag.
Prices are likely to be led by the resultant level of inventories and especially that of the US as it directly impacts the price movement.
Industry experts believe supply will exceed demand and surplus will again build up. This is why, the price level is likely to be lower than the average of Brent at $71 per barrel, which was achieved in 2021. Oil inventories for crude and key refined products have been drawing all year.
When comparing industry forecasts for 2022, the average demand growth will be around 3.9 million barrels per day while supply growth will be around 5.7 million barrels per day, which means a surplus of 1.8 million barrels per day adding pressure on that market and prices and may add to volatility. Shale will lead the expected growth in US production and is likely to reach its pre-pandemic levels by early 2023.
The year 2021 has been a record year for mergers and acquisitions in the US shale. Over the past few weeks, geopolitical supply risks were overshadowed by US’ SPR release and a 400,000 bpd OPEC+ increase for January. The next OPEC+ meeting is set for Jan. 4, 2022. Overall, the near-term sentiment does not support sharp upward price movements, instead pressure mounts on prices.