Global oil demand is set to shed 1.4 million barrels per day, Rystad says

Russian war, soaring inflation and fresh Covid-related lockdowns to take significant bite out of global oil demand, according to the consultancy

Oil prices continued to trade higher amid the Russia-Ukraine conflict. Brent is up more than 30 per cent since the start of this year. AP

The Russian invasion in Ukraine, Covid-induced fresh lockdowns in the world’s second largest economy China and soaring inflation will collectively reduce the global oil demand that could also calm the high prices, according to Rystad Energy.

Global oil demand is set to shed 1.4 million barrels per day, dropping below the highs set in 2019, with a rebound unlikely until at least next year, the Oslo-based consultancy said on Friday.

The new projection for oil demand shows an annual world average of 99.6 million bpd, dropping well below the pre-pandemic high of 100.2 million bpd set in 2019.

Additional lockdowns or geopolitical issues could lead to further economic growth reductions, applying additional downward pressure to demand forecasts, said Claudio Galimberti, senior vice president of analysis at Rystad Energy.

“Shrinking demand is a direct result of the impact of lower economic activity globally … despite continued supply tightness, a demand slump could provide some respite for global prices,” Mr Galimberti said.

Oil prices continued to trade higher amid Russia-Ukraine conflict. Brent is up more than 30 per cent since the start of this year, after falling from a 14-year high when the benchmark nearly touched $140 per barrel last month.

Opec+ member countries, led by Saudi Arabia and Russia, are boosting oil supplies in the market every month as global economies recover from the pandemic. The group will add another 432,000 barrels per day of crude to the market in May, it said last month.

“The global economy is battling surging inflation, additional strict Covid-19 lockdowns [in China] … continuing supply chain disruptions, and the impact on oil demand will be significant,” said Mr Galimberti.

On Monday, the World Bank cut its forecast for global growth to 3.2 per cent from its earlier expectation of 4.1 per cent. On Tuesday, the International Monetary Fund’s revised its global growth projections at 3.6 per cent in 2022 and 2023, revising the figures down 0.8 and 0.2 percentage points from its January forecast.

The revisions largely reflect the global spillovers of Russia’s military offensive in Ukraine and latest lockdowns in China as part of Beijing's strict zero-Covid-19 strategy that could cause new bottlenecks in global supply chains.

A prolonged war between Russia and Ukraine can be accompanied by a “significant increase in commodity prices, in particular oil and gas, especially if Europe decides to embargo Russian imports”, Mr Galimberti said.

“The Russian war worst case for oil demand is premised on Brent prices reaching $180 per barrel in the fourth quarter, triggering a further economic slowdown and outright destruction of oil demand.”

Russia is the world’s third-largest oil producer and the largest exporter, with about 5 million bpd of its crude representing roughly 12 per cent of global. Around 60 per cent of Russia’s oil exports go to Europe and another 20 per cent to China, according to the Paris-based International Energy Agency said.