The increase in commodities prices that has pushed inflation higher may affect demand for crude if the Russia-Ukraine conflict continues to leave a mark on the global economy, Opec said.
In addition to the pandemic, the conflict in Eastern Europe has added downside risk to the performance of the world economy in 2022, Opec said in its monthly market outlook report. The Russian-Ukraine crisis has also affected other asset classes, including currency markets, equities and debt markets that are being repriced.
“Clearly, this will impact economic activities in 2022, though to what extent remains to be seen,” Opec said.
A clear picture will emerge over the next few weeks but for the time being, the global economic growth forecast for 2022 remains under assessment at 4.2 per cent.
It will be “reviewed and adjusted, when there is more clarity”, the producers’ group said.
Opec has marginally increased its 2021 crude demand estimates to 5.7 million barrels per day from 5.6 million bpd after reviewing data from countries belonging to the Organisation for Economic Co-operation and Development (OECD).
It has, however, maintained its 2022 forecast at 4.2 million bpd, saying that due to the complexity of the situation, the speed of developments and the fluidity of the market, “projections are changing almost on a daily basis, making it challenging to pin down numbers with reasonable degree of certainty”.
Demand for crude from OECD is expected to reach about 1.9 million bpd while non-OECD countries' demand is expected to hit about 2.3 million bpd.
“However, this forecast is subject to change in the coming weeks, when there is more clarity on the far-reaching impact of the geopolitical turmoil,” it said.
Last week, the International Monetary Fund said it expects to lower its global growth projections as the Russian military offensive in Ukraine looks set to severely dent business and consumer confidence, forcing global trade to contract this year.
“We got through a crisis like no other with the pandemic and we are now in an even more shocking territory,” IMF managing director Kristalina Georgieva told a media roundtable at the time. “The unthinkable happened: we have a war in Europe.”
The fund has already lowered its global growth projection for 2022 to 4.4 per cent. The estimate in January was half a percentage point lower than its October 2021 projection on weaker economic momentum in the US and China amid rising inflation and higher energy prices.
Robust demand for crude last year drove oil prices 67 per cent higher. However, prices this year have risen sharply amid a rise in geopolitical tension, with the Ukraine conflict threatening to disrupt global energy supplies.
Brent, the global benchmark for two thirds of the world's oil, which soared to a notch under $140 per barrel this month, has since given up gains amid talks between Russia and Ukraine despite the continued bombardment of Ukrainian cities. Concerns of demand growth in China amid rising Covid-19 cases have also helped to cool crude prices.
Brent was trading 1.15 per cent higher at $101.1 per barrel at 8.22am UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was up 0.69 per cent at $97.11 a barrel.
The Russia-Ukraine crisis comes against a backdrop of “already tight global oil markets, heightened price volatility, commercial inventories that are at their lowest level since 2014 and a limited ability of producers to provide additional supply in the short term”, the International Energy Agency said this month.
The Paris-based organisation has agreed to release 60 million barrels of oil from emergency stocks to bring stability to energy markets as the Russia-Ukraine crisis intensifies.
Meanwhile, sanctions on Russia, one of the top crude producers in the world, have been mounting.
The US and UK banned the import of Russian crude while Europe, which imports more than 40 per cent of its natural gas and 30 per cent of its oil from Russia, has pledged to reduce reliance on Moscow for its energy needs.
The agency has tabled a 10-point initiative for the EU to reduce its reliance on Russian natural gas.
