LONDON (ICIS)--Global petrochemicals demand for crude oil will remain strong in 2021, but would slow down significantly in 2022, the International Energy Agency (IEA) said on Friday.
Supply, in any case, is set to match demand as many crude oil producers would be able to increase their output in a relatively short period of time.
Crude oil demand will surpass its pre-pandemic, 2019 levels by the end of 2022, said the IEA, with all growth in supply expected to come from non-OPEC countries, with the US and Canada in the lead.
The crude oil producing cartel, led by Saudi Arabia, will by the end of 2022 be producing around 2m bbl/day less than it did pre-pandemic, according to estimates from the IEA.
The global petrochemicals industry’s bonanza on the back of a strong rise in demand for all types of packaging and medical devices is set to end as the pandemic is brought under control and consumers spend more on experiences, rather than goods.
“Petrochemical demand has been relatively spared from the COVID crisis in 2020, as the need for medical equipment and packaging offset[s] a drop of demand in the manufacturing sector [in the initial stages of the pandemic],” said the IEA.
“Demand should remain strong in 2021, but growth is expected to slow in 2022. The US and China lead the petrochemical industry’s expansion.”
The slowdown in petrochemicals activity suggests that global demand for naphtha, a key petrochemicals feedstock, should be stagnant during 2022.
Q4 2022: REACHING PRE-PANDEMIC
The IEA is expecting crude oil demand to rebound by 5.4m bbl/day in 2021 to 96.39m bbl/day.
Demand fell by an historic 8.6m bbl/day in 2020, ending the year at 91.03m bbl/day.
Demand will increase by a further 3.1m bbl/day in 2022, averaging 99.5m bbl/day. It will be in the fourth quarter of 2022 when demand will reach pre-pandemic levels, said the IEA, at 100.6m bbl/day.
Demand in 2019, the last full year before the pandemic hit, stood at 99.67m bbl/day.
In 2022, aviation is expected to recover, after being battered by pandemic-induced travel restrictions, but that recovery will be subject to the pandemic being brought under control globally, the IEA added.
“By end-2022, [overall] demand should surpass pre-COVID levels. The recovery will be uneven not only amongst regions but across sectors and products. While the end of the pandemic is in sight in advanced economies, slow vaccine distribution could still jeopardise the recovery in non-OECD countries,” said the IEA.
“The aviation sector will be the slowest to recover as some travel restrictions are likely to stay in place until the pandemic is brought firmly under control. Gasoline demand is also expected to lag pre-COVID levels, as continued teleworking practices and a rising share of electric and more efficient vehicles provide an offset to increased mobility.”
The increase in demand will be matched by an increase in supply which will prop up producers outside OPEC, according to the IEA. It expects the US, Canada, Brazil, or Norway to be among the producers to gain the most.
However, OPEC+, the group led by Saudi Arabia and Russia representing countries outside the cartel, but allies, will need to “open the taps” to keep the world well supplied.
OPEC+ made voluntary output cuts to rebalance the market after stocks rose sharply in 2020.
“Meeting the expected demand growth is unlikely to be a problem ... Even after boosting oil production by around 2m bbl/day over the May-July period, OPEC+ will have 6.9m bbl/day of effective spare capacity. If sanctions on Iran are lifted, an additional 1.4m bbl/day could be brought to market in relatively short order,” said the IEA.
The US is reportedly considering lifting sanctions on Iran as part of a renewed nuclear accord, which would allow the Middle East crude powerhouse to return to the global market.
“As for those producers outside the alliance, output growth is set to accelerate from 700,000 bbl/day in 2021 to 1.6m bbl/day next year," it added.
"That leaves non-OPEC+ output well above 2019 levels. By contrast, even if OPEC+ producers were to fill the gap created by demand growth, the bloc’s output would still be more than 2m bbl/day below the 2019 average.”
Front page picture: A traveller at Brussels
Airport in May; the aviation sector would
recover in 2022 if the pandemic is ‘firmly’
brought under control globally, said the
Picture source: Frederic Sierakowski/Isopix/Shutterstock