Last week has been quite tumultuous in the oil markets, starting off with a pervasive feeling of demand gloom yet recording a weekly gain in the end, greatly aided by flat US inflation data and pipeline supply disruptions in Europe, OilPrice reports. 

One of the most interesting developments has been the increasingly diverging worldview of OPEC and the IEA. OPEC has been lowering its demand forecasts for 2022, last week by another 260,000 b/d on the back of recessionary pressures, whilst the International Energy Agency has increased its outlook, effectively arguing that elevated gas prices will be incentivizing higher crude utilization.

In stark contrast to OPEC, the International Energy Agency raised its outlook for 2022 crude demand by 380,000 b/d to 2.1 million b/d, arguing gas-to-oil switching will provide a boost to the recession-wary oil markets.  

Sweltering summer temperatures and soaring gas prices have boosted the use of oil in power generation, the International Energy Agency said, increasing demand but masking weakness in economies beset by recession fears. Switch from gas boosts oil demand, but economic headwinds loom, Reuters reports.

“Natural gas and electricity prices have soared to new records, incentivising gas-to-oil switching in some countries,” the agency said in its monthly oil report in which it raised its outlook for 2022 demand by 380,000 barrels per day to 2.1 million barrels per day (bpd). “These extraordinary gains, overwhelmingly concentrated in the Middle East and Europe, mask relative weakness in other sectors,” the IEA warned.

It cited reduced use of fuels for road transport in developed countries and slowing growth by the year’s end “aligning with more negative economic sentiment to suggest a considerable 2H22 contraction”. A rebound of air traffic, the IEA said, will provide one of the few bright spots for demand going forward. Much of the demand growth for 2022 is set to have been concentrated earlier in the year, with a slowdown in growth from 5.1 million bpd at the start of the year to less than 100,000 bpd in the fourth quarter.

/OilPrice, Reuters, IEA/