Global oil demand will continue to grow next year, indicating more pressure on an already tight market, with Opec producers required to pump almost a million barrels more per day in 2023.
It is estimated that demand for crude produced by the 13-member Opec bloc will rise by 900,000 bpd on an annual basis to 30.1 million bpd, the organisation said in its monthly outlook report released on Tuesday.
Overall demand growth in 2023 is expected to reach 2.7 million bpd to average 103 million bpd, with the demand in OECD countries rising by 600,000 bpd and non-OECD growth forecast at 2.1 million bpd.
A solid economic performance in major consuming countries, as well as improved geopolitical developments and the containment of Covid-19 in China, will support oil demand in 2023, Opec said.
“Nevertheless, uncertainty to the forecast remain to the downside, with much depending on the course of the pandemic and related measures, global financial tightening in the light of growing inflation and the resolution of the ongoing geopolitical issues in Eastern Europe,” the Opec report said.
Brent, the global benchmark for two thirds of the world's oil, dropped 6.59 per cent to $100.04 a barrel at 6.20pm UAE time. West Texas Intermediate, the gauge that tracks US crude, slumped 6.82 per cent to $96.99 a barrel.
“Oil is falling quite heavily today … [as] recession fears are strengthening the bearish case for crude and we're seeing those materialise after previously reaching very high levels,” said Craig Erlam, senior market analyst, UK and Europe, Middle East and Africa at Oanda.
“The market remains extremely tight and the Opec report today highlighted that fact, with demand next year seen exceeding supply by a million barrels per day. That should limit the downside we see as a worsening growth outlook is priced in.”
World oil demand is expected to exceed pre-pandemic levels in 2022, but the Russia-Ukraine war, pandemic-related developments and inflationary pressures are posing headwinds.
Economic uncertainty is mounting with growing fears of a global recession, as higher commodity prices and supply chain disruptions feed into spiralling inflation.
In April, 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.
The World Bank also slashed its growth forecast for the global economy, lowering it to 2.9 per cent from its previous 3.2 per cent projection. The latest forecast is significantly lower than the January estimate of 4.1 per cent and a deceleration from the 5.7 per cent expansion recorded in 2021.
Opec on Tuesday said it expects the global economy to expand 3.5 per cent this year and 3.2 per cent next year.
“This assumes that the ramifications of the pandemic, geopolitical developments in Eastern Europe and global financial tightening amid rising inflation do not negatively impact the 2023 growth dynamic to a major degree,” the oil producers' bloc said.
The 2023 demand projection by Opec is slightly higher than that of the International Energy Agency’s estimates of 101.6 million bpd.
The Paris-based agency expects global oil supply to “struggle” to keep pace with surging demand next year, suggesting consumers will continue to face tough oil markets in coming months.
A growing Chinese economy will drive up demand in 2023, as tighter sanctions imposed on Russia over its military offensive in Ukraine force the country to shut more wells and as a number of producers bump up against capacity constraints, the agency said in its June report.
Opec has kept its 2022 oil demand growth projection unchanged from the previous month’s assessment at 3.4 million bpd.
Oil demand in OECD countries is estimated to increase by 1.8 million bpd, while in non-OECD areas, it is estimated to expand by 1.6 million bpd, with total oil demand averaging 100.3 million bpd.
“The first quarter of this year was revised higher, amid better-than-anticipated oil demand in the main OECD consuming countries. However, with the resurgence of Covid-19 in China and ongoing geopolitical uncertainties, oil demand in the second quarter of 2022 is revised lower,” Opec said.