IEA Boosts 2022 Consumption Estimates, Oil Prices Rise Accordingly

Also, Lipow says the daily decline in prices at the pump are over: File Image/Pixabay

Demand fears continued to be somewhat mollified on Thursday due to the International Energy Agency boosting its forecast for global growth, and as a result crude prices once more escalated,  this time by over 2 percent.

West Texas Intermediate closed 2.6 percent higher to $94.34 per barrel, while Brent closed 2.3 percent higher to $99.60.

The IEA increased its 2022 consumption estimate by 2.1 million barrels per day this year, or about 2 percent, up 380,000 per day from the previous forecast on the grounds that natural gas price hikes and heat waves are prompting manufacturers and power generators to switch their fuel to oil.

The Paris-based agency added in its latest monthly report that the extra demand that prompted the revision will be "overwhelmingly concentrated" in the Middle East and Europe.

However, the IEA dismissed fears of a supply crunch, and projected that stockpiles will grow at a rate of 900,000 bpd for the rest of this year.

That said, the agency suggested that volatility could return in spades in 2022, by predicting that Russia's oil output will decline by a massive 20 percent – close to 2 million bpd by the start of 2023 -when the European Union bans come into effect at the start of next year;

Similarly, the Organization of Petroleum Exporting Countries (OPEC) on Thursday expected  global oil markets to incur a surplus this quarter; but it reduced forecasts for global oil demand in the same time period by 720,000 bpd and boosted projections for non-OPEC supply by 520,000 bpd, with total consumption to average 99.93 million bpd in the three month period.

This combined with recent developments such as the drop in U.S. prices at the pump and Transneft resuming flows on Russia's Druzhba pipeline caused Helge Andre Martinsen, a senior oil analyst at DNB Bank, to note that "It looks like demand worries might be a bit overdone, and extremely high gas prices will support oil demand during winter with gas-to-oil switching."

Still, raw data suggests the futures market is weakening: WTI's prompt spread - the gap between its two nearest contracts - has shrunk to about 87 cents per barrel in backwardation, down from $2.88 a month ago; Brent was at $1.34, down by about two-thirds during the same period.

Also of note on Thursday: despite enthusiastic press over U.S. gaso9line prices dropping below $4 per gallon, Andrew Lipow, president of Lipow Oil Associates, pointed out that "The streak of daily declines in the retail price of gasoline is about to end as crude oil and refined product futures have rallied off their recent lows."

He cited several factors that will soon cause prices to climb again, including refiners operating full out to match demand, and Washington's release of barrels from the Strategic Petroleum Reserve, which will end this fall and take supply off the market.