Global oil demand rebounded in 2021 from its Covid-induced historic decline and while demand is set to keep increasing in the immediate years, its longer-term outlook is uncertain because of challenges from alternative fuels and changing behaviour of drivers and commuters. The forecast for global oil demand has shifted lower, and demand could peak earlier than previously thought if a rising focus by governments on clean energy turns into stronger policies, and behavioural changes induced by the pandemic become deeply rooted, the International Energy Agency reported.

World oil demand growth is forecast to slow to 1.9 mb/d in 2Q22 from 4.4 mb/d in 1Q22 and is now projected to ease to 490 kb/d on average in the second half of the year on a more tempered economic expansion and higher prices. As summer driving escalates and jet fuel continues to recover, world oil demand is set to rise by 3.6 mb/d from April to August. For 2022, demand is expected to increase by 1.8 mb/d on average to 99.4 mb/d.

Russia shut in nearly 1 mb/d in April, driving down world oil supply by 710 kb/d to 98.1 mb/d. Over time, steadily rising volumes from Middle East OPEC+ and the US along with a slowdown in demand growth is expected to fend off an acute supply deficit amid a worsening Russian supply disruption. Excluding Russia, output from the rest of the world is set to rise by 3.1 mb/d from May through December.

Global refinery margins have surged to extraordinarily high levels due to depleted product inventories and constrained refinery activity. Throughputs in April fell 1.4 mb/d to 78 mb/d, the lowest since May 2021, largely driven by China. Between now and August, runs are forecast to ramp up by 4.7 mb/d, but the tightness in product markets is expected to continue based on our current oil demand outlook.

Global observed oil inventories declined by a further 45 mb during March and are now a total 1.2 billion barrels lower since June 2020. In the OECD, the release of 24.7 mb of government stocks during March halted the precipitous decline in industry inventories. OECD industry stocks rose by 3 mb to 2 626 mb, but remained 299 mb below the five-year average. Preliminary data for April show OECD industry inventories increased by 5.3 mb.

Crude prices fell in April to trade in a narrow $10/bbl range above $100/bbl. ICE Brent last traded around $105/bbl and WTI $102/bbl. Rapid early-May advances on the sixth round of EU sanctions for Russia drove renewed price tensions. High crude prices and exceptional product cracks are supporting strong inflation trends. Amid the widening supply and demand uncertainties, oil market volatility remains rife, but prices are trading in a lower and narrower $10/bbl range above $100/bbl. Brent last traded at $ 105/bbl and WTI $102/bbl.

Despite mounting international pressure and falling oil production, Russian exports have so far held up by and large. But now major trading houses are winding down deals ahead of a 15 May deadline to halt all transactions with state-controlled Rosneft, Gazprom Neft and Transneft. Following a supply decline of nearly 1 mb/d in April, losses could expand to around 3 mb/d during the second half of the year.