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 recorded “robust growth” in the first quarter of this year on the back of a strong economic rebound, supported by stimulus programmes and a further easing of Covid-19 containment measures.
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.