Opec lowers 2022 and 2023 oil demand forecast

Group blames lower oil demand in China and weaker economic activity for the reduction

Opec’s world economic growth forecast for 2022 and 2023 remains unchanged. Reuters

Opec slightly lowered its global oil demand forecast for this year and next year following a steep reduction in October, citing China’s zero-Covid policy, geopolitical uncertainties and weaker economic activity.

Global oil demand will increase by 2.5 million barrels per day this year, lower than Opec’s previous estimate of 2.6 million bpd, the group of oil-producing countries said in its monthly oil market report on Monday.

World oil demand next year will grow by 2.2 million bpd, down from an earlier estimate of 2.3 million bpd.

“Oil demand growth is anticipated to be challenged by uncertainties related to economic activities, Covid-19 containment measures and geopolitical developments,” Opec said.

Oil demand in Organisation for Economic Co-operation and Development countries will grow by 1.3 million bpd this year, down from earlier expectations of 1.4 million bpd.

Demand for crude produced by Opec countries this year will stand at 28.6 million bpd, 100,000 bpd lower than its earlier estimate.

Demand for the group's crude in 2023 has been revised down by 200,000 bpd to 29.3 million bpd.

Opec’s world economic growth forecast for 2022 and 2023 was unchanged at 2.7 per cent and 2.5 per cent, respectively.

“The global growth has clearly entered into a period of significant uncertainty and mounting challenges,” the group said.

“This includes high inflation levels and the consequences of monetary tightening by major central banks, high sovereign debt levels in many regions and ongoing supply chain issues.”

China, the world’s second-largest economy, has persisted with its zero-Covid policy despite the impact on economic growth.

Oil markets have been volatile in the past few weeks over expectations that the top crude oil importer would drop some Covid containment curbs.

Brent, the benchmark for two-thirds of the world’s oil, was trading 1.17 per cent lower at $94.87a barrel at 5.08pm on Monday. West Texas Intermediate, the gauge that tracks US crude, was down 1.35 per cent at $87.76 a barrel.

“There is hope that China could further relax its zero-Covid policy next spring, but for now, mass testing, heavy restrictions, and lockdowns are here to stay, despite growing opposition and fatigue,” Craig Erlam, senior market analyst at Oanda, said on Monday.

“Those hoping that this initial relaxation phase would be more substantial were always setting themselves up for disappointment.”

Markets will enter another phase of uncertainty when an EU ban on Russian crude oil goes into effect on December 5.

The EU’s energy supply represents a notable “downside risk” as further supply-related issues could lead to a more “accentuated” slowdown of the region’s economy this winter and beyond, Opec said.

The continent is in the middle of its worst energy crisis after Russia, the region’s biggest natural gas supplier, curtailed exports sharply in response to EU sanctions over its military offensive in Ukraine.

To replace Russian gas in the short term, some European countries have brought coal-fired power plants back into operation and this has triggered concerns about their ability to meet climate commitments.

Last month, the International Monetary Fund cut its growth forecast for next year and warned of a cost of living crisis as the global economy continues to be affected by the war in Ukraine, broadening inflation pressures and a slowdown in China.

The fund maintained its global economic growth estimate for this year at 3.2 per cent but downgraded next year's forecast to 2.7 per cent — 0.2 percentage points lower than the July forecast. There is a 25 per cent probability that growth could fall below 2 per cent next year, it said in its World Economic Outlook report last month.