Opec has lowered its demand forecast for a second straight month due to softer global economic growth caused by the war in Ukraine, Covid-19 lockdowns in China and concerns about lower consumption.
Demand is forecast at 3.4 million barrels per day this year, 300,000 bpd less than the oil-producing bloc's previous forecast in April, Opec said on Thursday.
Total consumption is expected to surpass 100 million bpd in the third quarter, as previously predicted by the group.
“Demand in 2022 is expected to be impacted by ongoing geopolitical developments in Eastern Europe, as well as Covid-19 pandemic restrictions,” Opec said.
Geopolitical and economic uncertainty is mounting around the world after Russia’s military offensive in Ukraine, with inflation also rising due to higher commodity prices and supply chain disruptions.
Last month, the International Monetary Fund lowered its 2022 growth forecast to 3.6 per cent, from its previous estimate of 4.4 per cent in January.
In its latest report, Opec also lowered its growth forecast for the global economy to 3.5 per cent this year, from last month’s assessment of 3.9 per cent.
“Geopolitical tensions in Eastern Europe and their impact on the global economy, particularly in Europe, continue,” Opec said. “Global inflation has risen further and hence, financial tightening continues. Furthermore, supply chain bottlenecks constitute an ongoing concern.”
Inflation in the US, the world's largest economy, remains at a 40-year high after hitting 8.3 per cent last month, while prices in Europe increased by 7.5 per cent in April.
Rising prices have prompted central banks to raise interest rates, with some analysts warning of economies sliding into recessions.
China, the world’s second-largest economy and top oil importer, continues to restrict movement in Shanghai and other big cities to stem the spread of the pandemic.
Shanghai, the country’s largest city, has been in lockdown for more than a month as authorities follow a “zero-Covid” strategy.
Oil, which rose to above $139 a barrel in March after Russia’s military offensive, has been trading lower in the past few weeks amid demand concerns. Oil prices are up by about 60 per cent from last year.
Brent, the global benchmark for two thirds of the world's oil, was trading 1.51 per cent lower at $105.89 a barrel at 3.42pm UAE time on Thursday while West Texas Intermediate, the gauge that tracks US crude, was down 1.42 per cent to $104.21 a barrel.
Oil demand in Organisation for Economic Co-operation and Development (OECD) countries grew by 3.3 million bpd in the first-quarter, said Opec. Demand in non-OECD countries grew by 1.9 million bpd.
Spending on oil and gas exploration and production in non-Opec countries increased by $16 billion in 2021 to $350bn, and is expected to rise by about 14 per cent in 2022, Opec said.
Spending is expected to go up in Brazil, the US, Canada, and Norway due to higher oil prices. However, the overall level remains below pre-pandemic levels and significantly below the high of $749bn in 2014.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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