The Organization of the Petroleum Exporting Countries on Tuesday lowered its forecast for global oil demand growth in 2022, citing the consequences of Russia’s invasion of Ukraine, rising inflation as oil prices soar and the resurgence of the Omicron mutated strain of coronavirus in China.
The Organization of the Petroleum Exporting Countries said in a monthly report that global demand will rise by 3.67 million barrels per day in 2022, down by 480,000 barrels per day from its previous forecast.
The invasion in February sent oil prices above $139 a barrel, the highest since 2008, exacerbating inflationary pressures. Crude oil prices fell after that as the United States and other countries announced plans to withdraw from strategic oil stocks to boost supply, but they are still above $100.
“While Russia and Ukraine are expected to face recessions in 2022, the rest of the global economy will also be significantly affected,” OPEC said in the report.
“The strong rise in commodity prices coupled with ongoing supply chain and logistical bottlenecks associated with COVID-19 in China and elsewhere are fueling global inflation.”
However, global oil consumption is expected to exceed 100 million barrels per day in the third quarter, according to OPEC forecasts. The organization said that the world last consumed more than 100 million barrels per day of oil in one year in 2019.
OPEC said inflation was the main factor affecting the global economy and lowered its forecast for economic growth this year to 3.9 percent from 4.2 percent, and said there was a chance for further cuts.
Oil pared its previous gains for a while after the report was released, although it rose by about five dollars, topping 103 dollars by 1325 GMT.
OPEC and its allies, including Russia, in the OPEC + group, cancel record production cuts approved in 2020, and reject Western pressure to increase production at a faster pace.
At its last meeting, OPEC+ ignored the Ukraine war, which Russia describes as a “special military operation”, and stuck to the previously agreed plan to increase the monthly production target by 432,000 barrels per day in May.
The group is unable to fully meet the promised production increases, due to a lack of investment in oil fields by some members, which is partly due to the pandemic.
The OPEC report showed that the organization’s production rose in March by only 57 thousand barrels per day to 28.56 million barrels per day, lagging behind the increase of 253 thousand barrels per day allowed for OPEC under the OPEC + agreement.
The forecast for non-OPEC supply growth in 2022 has fallen by just over 300,000 bpd to 2.7 million bpd. OPEC lowered its forecast for Russia’s production by 530,000 barrels per day, although it raised its forecast for US shale oil.
OPEC expects the supply of shale oil in the United States to rise by 880,000 barrels per day in 2022, up from 670,000 barrels per day forecast last month, and said that there is potential for further expansion, although most US oil companies are still focused on capital discipline.