The International Energy Agency (IEA) expects continued tightening of the global oil market this month, driven by factors on both the supply and demand sides of the equation.

In its latest monthly Oil Market Report, the global energy watchdog said it now expects global oil demand to rise by 5.2 million b/d this year, and by 3.2 million b/d in 2022.

“Global oil demand is estimated to have declined for three straight months due to a resurgence of Covid-19 cases in Asia,” IEA researchers said. “Already signs are emerging of Covid cases abating with demand now expected to rebound by a sharp 1.6 million b/d in October, and continuing to grow until end-year.”

World oil supply dropped by 540,000 b/d month/month in August to 96,100 b/d, the IEA team said, and is expected to stay flat in September. Researchers explained that unplanned outages have offset supply increases from the Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus.

“The most severe by far” of the outages was caused by Hurricane Ida, “which wreaked havoc on the key U.S. Gulf Coast oil production region at the end of August, knocking 1.7 million b/d offline,” researchers said. “Concerns over the impact of rising Covid-19 cases on oil demand kept a lid on prices, however, with benchmark crudes falling month/month before edging marginally higher in early September.” 

The Nymex West Texas Intermediate (WTI) contract for October delivery settled at $70.46/bbl on Tuesday (Sept. 14), up from $70.45 on Monday.

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“An uptrend in supply should resume in October as OPEC-plus continues to unwind cuts, outages are resolved and as other producers increase,” researchers said. 

IEA has revised downward its forecast for 3Q2021 global refining throughput by 830,000 b/d to 78.8 million b/d, up from 1.5 million b/d in the second quarter.

The revision is due to a “steep fall in China’s refinery activity in July, followed by Hurricane Ida’s impact on U.S. refining in August and September,” researchers said. 

August saw the first significant decline in oil prices since September 2020, the report’s authors said, which “boosted product cracks and refinery margins across the board.”

Crude oil storage levels paint a bullish picture as well.

Stocks in Organization for Economic Cooperation and Development (OECD) countries drew by 34.4 million bbl in July to stand at 2.85 billion bbl, 185.7 million bbl lower than the 2016-2020 average and 120.3 million bbl below the pre-Covid five-year average, IEA researchers said.

In August, meanwhile, preliminary data for the United States, Europe and Japan show that stocks fell by another 31.1 million bbl while crude oil held in short-term floating storage dropped by 20.3 million bbl to 101.7 million bbl.

Researchers noted that oil prices fell on average in August, “trading in a wide $8-$9/bbl range, and the forward price curve flattened substantially. 

“The drop reflects concerns about economic growth, inflation prospects and weaker oil demand linked to rising Covid infections.”

By early September, however, “supply losses from Hurricane Ida lifted prices almost back to early July levels,” the IEA team said.

Meanwhile, OPEC this week said it expects global oil demand to rise by 5.96 b/d to average 96.68 million b/d in 2021, and to grow by another 4.2 million b/d in 2022, surpassing pre-pandemic levels.

For its part, the U.S. Energy Information Administration (EIA) in its latest Short-Term Energy Outlook said it expects oil demand to grow by 5 million b/d in 2021. EIA expects WTI to average $65.69 in 2021 and $62.37 in 2022.

The Brent oil benchmark is seen averaging $68.61 in 2021 and $66.04 in 2022 as “growth in production from OPEC-plus, U.S. tight oil and non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining to an annual average of $66/bbl,” EIA said.