APPEC: tight 2022 oil supply in a context of underinvestment, cautious OPEC and recovery in demand



Strong points

The oil industry is massively underinvesting to meet future supply: Hess Corp.

Asian refiners say OPEC + should increase supply by at least 700,000 bpd

Platts Analytics expects Iranian barrels to return to market by February 2022

Global oil demand appears poised to return to pre-pandemic levels in 2022, but a sharp decline in upstream investment and OPEC’s cautious approach to increasing the group’s production volumes could lead to a undersupplied market next year, with Asian end users and consumers mainly finding Crude and raw material prices have overheated, industry attendees said at the S&P Global Platts Asia Pacific Petroleum Conference on the 27th. September.

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Global upstream investment before the COVID-19 pandemic was around $ 650 billion, but has fallen to around $ 300 billion, a decline of about 50%, said Greg Hill, president and chief of operating Hess Corporation in a chat session with CEOs at APPEC. .

“However, aggregate global demand compared to projections 6 years ago, despite COVID 19, we are not that far away … which tells me the industry is massively underinvesting to meet future supply.” Hill said.

There is structural underinvestment and global upstream capital spending has been lackluster since the financial crisis, Trafigura chief economist Saad Rahim told a panel discussion at APPEC.

“The world will still need more than 90 million barrels a day of oil and the catching up of capital spending has to happen,” he said.

Asian refiners and trading companies have also agreed that the pace of increasing global supply and upstream investment is lagging, while oil prices appear to be overheated.

OPEC and its allies agreed on September 1 to increase their collective crude production by 400,000 bpd in October, sticking to their original agreement reached in July to increase production by the same margin every month d ‘August to the end of 2022.

According to eight major Asian refiners and trading companies surveyed by Platts during the first day of APPEC, including ENEOS, BPCL, SK Innovation, Chinaoil, Pertamina and PTT, OPEC + should ideally increase supply by at least 700,000 to 800,000 bpd depending on the sentiment of Asian consumers. suffers from high prices.

With ultra-low interest rates and aggressive monetary easing policies expected to continue to support the prices of assets, commodities and energy at large, Asian end users and consumers are asking the OPEC + to at least play its role in controlling sharply inflated oil prices to the benefit of global consumer confidence and recovery in demand.

Broadly speaking, energy and commodity prices are very high, but the global economy is still not at full throttle, Rahim said.

“Producers should step up production … I expect that [the need for such output increase] to become clearer in 2022, ”Giovanni Serio, head of research at Vitol, told the panel.

Resumption of demand

Six of eight Asian refiners and traders surveyed by Platts expect demand for petroleum products in Asia to return to 2019 levels by the second quarter of 2022 at the latest, predicting that more than half of Asia’s population ‘East will be fully vaccinated by then.

While the multitude of travel restriction measures enforced in many East Asian states and countries and the continued risk of a resurgence of COVID-19 cases will likely continue to pose risks to the regional economy, a robust recovery in consumer and industrial fuel demand is expected to occur in 2022.

“By 2022, demand in India and South Korea will exceed their respective 2019 levels, in addition to China, bringing regional demand above pre-COVID levels by about 3%,” according to JY Lim, Oil Market Advisor at S&P Global Platts Analytics.

In the United States, Hill said the gasoline market has already recovered to about 98% of pre-pandemic level in terms of sales. In addition, the latest Transportation Security Administration (TSA) report showed that air travel throughput at U.S. airports during the last Labor Day holiday was only 5% lower than before levels. pandemic, according to Hill.

Iran Wildcard

After lengthy nuclear talks and negotiations, Iranian barrels could return to international markets in the first quarter of 2022, possibly by February if a deal is reached, said Kang Wu, head of global demand and marketing. Asian analysis at Platts Analytics, during a roundtable at APPEC.

South Korean, Chinese and Japanese petrochemical manufacturers and refiners told Platts the companies were excited about the potential resumption of Iranian oil trade next year, as the Persian Gulf producer could supply an abundance of crude and highly condensed oil. economic in Asia.

Northeast Asian end users, including South Koreans Hanwha Total and SK Innovation, Chinese Sinopec and Fuhaichuang, or formerly Dragon Aromatics, as well as Japanese ENEOS were among the biggest customers of Iranian oil before the sanctions .

Although industry executives and analysts have said OPEC + will have sufficient spare capacity to meet Iranian supply, the return of Iranian crude and condensate will likely pave the way for further competition for the pie. Asian demand, prompting major producers to bid competitively in the market, according to refinery officials and trade sources in China, South Korea, Japan, Hong Kong and India.



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