Opec lowered its global oil demand forecast for this year amid the Ukraine war, coronavirus pandemic-related movement restrictions and high inflation.
Oil demand is expected to rise by 3.1 million barrels per day in 2022, down 260,000 bpd from the previous forecast, the group said in its monthly market report on Thursday.
The report said that global oil consumption in 2022 is projected to average 100 million bpd.
“Global oil market fundamentals continued their strong recovery to pre-Covid-19 levels for most of the first half of 2022, albeit signs of slowing growth in the world economy and oil demand have emerged,” it said.
For 2023, the forecast for world oil demand growth remains unchanged at 2.7 million bpd, with total oil demand averaging 102.7 million bpd, the producers' group said.
Oil demand in 2023 is expected to be supported by a “still-solid economic performance in major consuming countries, as well as improving geopolitical developments and improvement of Covid-19 in all regions”, it said.
Oil prices have remained volatile this year. Brent touched about $140 barrel in March following Russia’s invasion of Ukraine and the subsequent sanctions by the US and the UK on the import of crude from Moscow.
However, oil fell in the last few months as concerns grew over the possibility of a looming recession hitting fuel demand globally.
Brent, the global benchmark for two thirds of the world's oil, was trading 1.27 per cent higher at $98.64 per barrel at 5pm UAE time on Thursday. West Texas Intermediate, the gauge that tracks US crude, was up 1.32 per cent at $93.14 a barrel.
In July, the International Monetary Fund lowered its growth forecast for the global economy to 3.2 per cent this year, from its previous forecast of 3.6 per cent in April, amid Russia’s war in Ukraine, high inflation and the Covid-19 pandemic.
“While physical oil market fundamentals remain strong, volatility in futures markets remained fuelled by expectations of lower GDP [gross domestic product] growth, amid rising global inflation, which prompted key central banks to begin raising interest rates,” Opec said.
The Bank of England last week raised interest rates from 1.25 per cent to 1.75 per cent, the largest increase in nearly three decades, to curb inflation, which is at a 40-year high of 9.4 per cent.
The UK, the world’s fifth-largest economy, will enter five consecutive quarters of recession, with GDP falling as much as 2.1 per cent, the central bank said, as it warned of a significant squeeze on living standards.
The US, the world’s largest economy, also increased interest rates last month amid higher inflation.
Meanwhile, the world's second-largest economy, China, continues to enforce movement restrictions to control the spread of the pandemic as part of its “zero Covid” strategy.
The strengthening of the US dollar against a basket of major currencies also “added concern” to the market, Opec said, since it makes makes oil becomes more expensive for international buyers.
In its latest report, the producers' group cut demand for Opec crude in 2022 by 0.3 million bpd from the previous month’s forecast to 28.8 million bpd, which is about 0.9 million bpd higher than in 2021.
“Similarly, demand for Opec crude in 2023 is revised down by 0.3 million bpd from the previous month’s assessment to stand at 29.8 million bpd, around 0.9 million bpd higher than the 2022 level,” it said.
The report also expects Opec supply to grow by 0.1 million bpd to average 5.4 million bpd in 2022.
Opec+ oil production in July increased by 216,000 bpd month-on-month to average 28.9 million bpd, according to available secondary sources, it said.
The super group of oil producers agreed earlier this month to increase September output by a much slower 100,000 barrels per day amid continued price volatility caused by fears of a recession that could dent crude demand.
Meanwhile, non-Opec supply is forecast at 2.1 million bpd to average 65.8 million bpd in 2022, broadly unchanged from the previous assessment.
“An upward revision to Russia is offset by downward revisions to the US, Norway and Kazakhstan,” the report said.
“The main drivers of liquids supply growth for 2022 are expected to be the US, Canada, Brazil, China and Guyana, while production is expected to decline mainly in Indonesia and Thailand.”
While the supply outlook for 2023 remains unchanged, the report said that “uncertainty regarding the operational and financial aspects of US production as well as the geopolitical situation in Eastern Europe remains high”.
Meanwhile, the Paris-based International Energy Agency, which also released its monthly report on Thursday, projected higher demand for oil this year driven by increasing oil use for power generation and gas-to-oil switching.
Global oil demand growth is expected to jump by 380,000 bpd to 2.1 million bpd this year, it said.
The agency predicted total world oil demand will reach 99.7 million bpd in 2022 and surpass pre-Covid levels of 101.8 million bpd next year.