(Bloomberg) -- OPEC sounded a cautious note on the strength of oil demand, even after international crude prices surged above $80 a barrel for the first time in several years. 

In its monthly market report, the cartel revised down its estimate for global oil consumption this year and told members to keep a close eye on the market. While the spike in natural gas prices could boost petroleum use in some areas, such as power generation, it could potentially curb demand in other areas, such as refining.

The Organization of Petroleum Exporting Countries and allies including Russia are in the process of restoring the production they shut down at the start of the coronavirus pandemic. At their last meeting on Oct. 4, the group stuck to its slow-and-steady plan, adding 400,000 barrels a day of supply regardless of pressure from some major consumers to go faster. 

“Despite positive assumptions on oil demand going into the final quarter of the year, supported by seasonal petrochemical and heating fuel demand as well as the potential of switching from natural gas to oil,” actual data on consumption earlier in the year was weaker than expected, OPEC’s Vienna-based secretariat said in the report. It advised producers “to maintain a vigilant watch over market fundamentals.”

OPEC’s estimate for global oil demand growth this year was reduced to 5.8 million barrels a day, down from 5.96 million barrels a day previously. The change was due to lower consumption data in the first nine months of the year, while total fourth-quarter demand was revised up by 120,000 barrels a day to 99.82 million barrels a day. 

Record prices for natural gas could result in consumers switching to oil instead in some sectors, but it’s not an unequivocal boost for petroleum demand, according to the report.  

“Fuel oil, diesel, and naphtha could see support, driven by higher demand from power generation, refining and petrochemical use,” OPEC said. “On the other hand, record-high natural gas prices have pushed electricity costs and, consequently, refining operational costs higher. This could weigh on refinery intakes and industrial production and partially offset the upside potential.”

The cartel’s data showed that its gradual approach to reviving idle production was keeping the market undersupplied, resulting in a rapid draining of fuel stockpiles. The gap between the world’s need for OPEC crude and the group’s actual production jumped to 2.68 million barrels a day in the third quarter -- greater than the output of Kuwait. 

Oil inventories in industrialized economies fell by 19.5 million barrels in August to 183 million barrels below the five-year average. 

 

 

 

 

 

©2021 Bloomberg L.P.