OPEC expects total oil demand to surpass the 100 MMbbl/d mark in 2022 amid a better-than-anticipated demand outlook in key OECD-consuming countries and despite the resurgence of COVID-19 in China plus ongoing geopolitical uncertainties stemming from Russia’s invasion in Ukraine.

Total oil demand in 2022 is forecast to grow 3.4 MMbbl/d to average 100.3 MMbbl/d while demand in 2023 is forecast to grow 2.7 MMbbl/d to average 103 MMbbl/d, OPEC announced in its July Monthly Oil Market Report. Demand for oil in 2023 is also expected to be supported by “still solid economic performance in major consuming countries, as well as improved geopolitical developments and containment of COVID-19 in China,” the organization added.

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OPEC still forecasts supply growth to come from U.S. Permian oil and non-conventional NGL and the Gulf of Mexico. Additional oil supply is expected from Brazil, Guyana and Norway as well as Kazakhstan and Argentina via new field start-ups and ramp-ups of existing projects, the cartel said. The supply outlook was tightened by disruptions in Libya and Ecuador, low June and July loading programs for several grades and a planned oil and gas sector strike in Norway.

OPEC Basket

OPEC’s reference basket price rose in June 2022 by $3.85/bbl to settle at $117.72/bbl, up 3.4% compared to the prior month due to “strong buying interest from refiners, high refining margins amid a tight light sweet crude due to supply outages,” OPEC said. In the first six months of 2022, the reference price averaged $105.37/bbl, up 65% compared to $63.85/bbl in the same six-month period in 2021.

“The market structure of all three major crude benchmarks—ICE Brent, Nymex WTI and DME Oman—strengthened further in June and prompt time spreads moved into deeper backwardation,” OPEC said, adding that “hedge funds and other money managers cut net long positions by nearly 11% in the two major futures contracts.”

Prices have also been supported by tight oil product markets and the prospect of higher oil demand in China due to a gradual easing of COVID-19 lockdown measures coupled with signs of robust demand for road transportation fuel during the driving season. 

Economic Slowdown

Despite OPEC’s forecast for oil demand growth and the current commodity price environment, the organization still sees world economic growth sliding next year.

World economic growth in 2022 is forecast at 3.5% and in 2023 at 3.2%. In the U.S., growth in 2022 is forecast at 3% and 2023 at 2.1% while in the eurozone the forecasts for 2022 and 2023 show growth at 3% and 2% respectively. Russia is one major economy forecast to show a slowdown mainly due to its invasion in Ukraine. Russia’s economic growth in 2022 is forecast to contract 6%, but then 2023 its growth is forecast at 1.2%.

“Consumption remains robust, especially in the advanced economies, with an expected continued recovery, particularly in the contact-intensive services sector, which includes travel and transportation activity, leisure and hospitality,” OPEC said in its July report. “However, significant downside risks exist, stemming from ongoing geopolitical tensions, the continued pandemic, rising inflation, aggravated supply chain issues, high sovereign debt levels in many regions and expected monetary tightening by central banks in the U.S., the U.K., Japan and the eurozone.”