OPEC Cuts Oil Demand Growth Estimate Over Recession Fears

The Organisation of Petroleum Exporting Countries (OPEC) yesterday announced a cut in its global oil demand growth forecast for 2023 over fears of global economic recession.

The downward review, which is the fifth of such in eight months, the Organisation maintained, comes on the heels of “significant economic uncertainty and China’s zero-Covid policy.”

In its Monthly Oil Market Report (MOMR) released yesterday, OPEC revised downward, each of its 2022 and 2023 oil demand growth forecasts by 100,000 barrels per day (bpd) from last month’s estimates due to China’s still-strict COVID policy and economic challenges in Europe. In 2023, OPEC believes economic risks are skewed to the downside but that the resolution of Russia’s war in Ukraine could change that.

“The significant uncertainty regarding the global economy, accompanied by fears of a global recession contributes to the downside risk for lowering global oil demand growth. In addition, China’s strict adherence to the ‘zero COVID-19 policy’ adds to this uncertainty, making the country’s recovery path even more unpredictable,” OPEC said in its MOMR.

In October, a week after announcing two-million barrels per day (mbpd) cut to its collective oil production target, OPEC slashed its global oil demand growth estimates for both 2022 and 2023. Those estimates are now further revised down by 100,000 bpd each.

OPEC now sees global oil demand growth at 2.5 million bpd in 2022 after slashing the fourth-quarter demand projections by nearly 400,000 bpd.

Global oil demand is projected to average 99.6 million bpd this year, with developed economies in the Americas seeing the highest rise in demand, led by the U.S. on the back of recovering gasoline and diesel demand, the cartel said. Light distillates are also projected to support demand growth this year, OPEC added.

For 2023, OPEC now sees oil demand growth at 2.2 million bpd, down by 100,000 bpd from the growth expected in its MOMR October report. World oil demand is set to average 101.8 million bpd, “supported by expected geopolitical improvements and the containment of COVID-19 in China,” according to OPEC. Next year, U.S. demand is expected to exceed 2019 levels, thanks to a recovery in transportation fuels and light distillate demand. However, Organisation for Economic Co-operation and Development (OECD) Europe and the Asia Pacific are not expected to rise above 2019 consumption levels, the cartel said.

“While risks are skewed to the downside, there exists some upside potential for the global economic growth forecast. This may come from a variety of sources. Predominantly, inflation could be positively impacted by any resolution of the geopolitical situation in Eastern Europe, allowing for less hawkish monetary policies,” OPEC noted in its report.