LONDON: OPEC on Tuesday cut its forecast for growth in world oil demand in 2022 citing the impact of Russia’s invasion of Ukraine, rising inflation as crude prices soar and the resurgence of the Omicron coronavirus variant in China.
In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) said world demand would rise by 3.67 million barrels per day (bpd) in 2022, down 480,000 bpd from its previous forecast.
The invasion in February sent oil prices soaring above $139 a barrel, the highest since 2008, worsening inflationary pressures. Crude has since fallen as the United States and other nations announced plans to tap strategic oil stocks to boost supply, but remains over $100.
“While it is forecast that both Russia and Ukraine will be facing recessions in 2022, the rest of the global economy will be thoroughly impacted as well,” OPEC said in the report.
“The strong rise in commodity prices in combination with ongoing supply-chain bottlenecks and COVID-19-related logistical logjams in China and elsewhere are all fuelling global inflation.”
Even so, world oil consumption is expected to surpass the 100 million bpd mark in the third quarter, as OPEC has predicted. On an annual basis according to OPEC, the world last used more than 100 million bpd of oil in 2019.
Oil rises as Shanghai eases some COVID curbs, OPEC warns of tight supply
OPEC said inflation was the major factor impacting the world economy and lowered this year’s economic growth forecast to 3.9% from 4.2% and said there was a chance of a further cut.
“Further downside risks to this forecast are estimated to be considerable, to stand at more than half a percentage point, especially if the current situation extends into the second half of 2022 or even worsens,” the report said.
Oil briefly pared an earlier gain after the report was issued, although it was up almost $5 to above $103 by 1325 GMT.
Output Undershoots
OPEC and its allies, which include Russia, in a grouping known as OPEC+, are unwinding record output cuts put in place in 2020 and have rebuffed Western pressure to raise output at a faster pace.
At its last meeting, OPEC+ swerved the Ukraine war, which Russia refers to as a “special military operation”, and stuck to a previously agreed plan to boost its monthly output target by 432,000 bpd in May.
Underinvestment in oilfields in some OPEC members - partly a result of the pandemic - means the group has been unable to fully deliver its promised output increases.
OPEC’s report showed OPEC output in March rose by just 57,000 bpd to 28.56 million bpd, lagging the 253,000 bpd rise that OPEC is allowed under the OPEC+ deal.
The growth forecast for non-OPEC supply in 2022 was reduced by just over 300,000 bpd to 2.7 million bpd. OPEC cut its forecast of Russian output by 530,000 bpd, although it raised its forecast for U.S. tight oil, another term for shale.
OPEC expects U.S. tight oil supply to rise by 880,000 bpd in 2022, up from 670,000 bpd last month, and said there was potential for further expansion even though most U.S. oil companies are still focusing on capital discipline.