OPEC cut its 2022 forecast for global oil demand growth, citing the economic impact from Russia’s invasion of Ukraine, high inflation, and the risks of a global economic slowdown. It was the third forecast reduction since April, and put the Cartel’s forecast at odds with the forecast of the International Energy Agency, which on Thursday had just increased its demand outlook.
In its monthly report, OPEC predicted there would be a rise of 3.1 million barrels per day (BPD), or 3.2%, which was down from 260,000 bpd in the previous forecast. The IEA had predicted a 380,000 bpd increase to 2.1 million bpd.
Oil consumption is set to exceed 2019 levels this year, rebounding from its pandemic lows, even after prices hit record highs. However even OPEC’s growth forecast has been eroded by demand destruction from high prices and lingering Covid restrictions especially in China.
OPEC said in its report, “Global oil market fundamentals continued their strong recovery to pre-COVID-19 levels for most of the first half of 2022, albeit signs of slowing growth in the world economy and oil demand have emerged.”
OPEC reduced its global economic forecast for this year to 3.1% from 3.5%, and predicted a similar 3.1% growth for next year, saying it believed the prospects of weakness would remain into next year.
OPEC said, “This is, however, still solid growth, when compared with pre-pandemic growth levels. Therefore, it is obvious that significant downside risk prevails.”
Oil prices maintained an earlier gain after OPEC’s report was released, focusing instead on the IEA’s report, and trading above $98 per barrel.
Although OPEC and its allies in OPEC+, including Russia, have committed to ramp up oil output as the global economy emerged from the pandemic, the cartel has failed to fully attain those production increases, in large part due to underinvestment in production capacity by some members, and by the losses in Russian output arising from sanctions put in place after Russia’s invasion of Ukraine.
The most recent report showed that output rose by 162,000 barrels per day in July, a much smaller increase than pledged.
OPEC also suggested in its report it sees the global oil market remaining tight into 2023. Its world demand growth projection was unchanged at 2.7 million barrels per day. It projects non-member countries will increase production by 1.71 million barrels per day, meaning OPEC will have to increase production by about 900,0000 barrels per day to balance out the increased demand.
While OPEC did not change its 2023 forecast for overall non-OPEC supply, the report did indicate it saw some acceleration forthcoming in US Shale production. Analysts expect US production of “tight oil,” another term for US Shale, will rise by 800,000 barrels per day, an increase of 60,000 barrels per day over the 740,000 barrels per day in 2022.
