BAKU, Azerbaijan, Oct.4
By Leman Zeynalova – Trend:
A full return in aviation fuel demand is not forecast before 2024, though a faster-than-anticipated recovery presents clear upside risk to prices, Trend reports with reference to Fitch Solutions.
“Cross-border travel restrictions and low passenger demand continue to see flights remain well below pre-pandemic levels. Although flights have increased substantially from the nadir, commercial flights for the month of September remain 20 percent below pre-Covid-19 levels. We estimate a full return of aviation fuel demand will add an additional 3 to 4 mnb/d of demand by 2024. However, given additional demand for petrochemicals, manufactured goods and heavy goods transport, total oil demand will likely return to pre-pandemic levels sometime in Q3 2022. While the top line narrative remains positive, the rise in oil supply is expected to exceed the growth in demand in the year ahead by nearly 2mnb/d,” reads the report.
Given the current pricing and term spreads, Fitch Solutions expects the strength in prices to remain for the start of the year.
“Notwithstanding potential supply disruptions from geopolitical hotspots in Libya and the Middle East, we expect progress in US-Iranian nuclear talks to substantially increase regional oil supply as the year goes on and into 2023, adding to the additional volumes expected from the GCC. The threat of the increased supply should help curb prices as Covid-19 impacts linger and EM demand gains fail to fully balance new supply.
Rising output from OPEC+ and non-OPEC producers in 2022 will give rise to oversupply in 2022, given the weaker demand growth in our forecast. The mismatch in supply growth will a remain key element in the price downturn we expect for 2022, although we are likely to see elevated prices at the start of the year. However, we caution that technical indicators and futures prices still remain highly bullish through the bulk of 2022, in contradiction with our fundamental outlook. If Brent prices break out above USD80/bbl in near term, we could see prices test the next level of resistance at USD85/bbl, although this does not form our core view. Rather, we expect high oil prices will eventually cool demand as recent USD strength will add to pain for oil importers, who will cut consumption in response, ultimately pulling prices lower before a balance is restored and prices begin a gradual uptick on an average annual basis from 2023,” reads the report.
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