Opec forecasts slower 2023 oil demand growth

Opec expects global oil demand to rise in 2023 but at a slower pace than 2022, the producer group said in its first forecast for next year, citing still robust economic growth and progress in containing COVID-19 in China.

In a monthly report on Tuesday, the Organization of the Petroleum Exporting Countries (Opec) said it expects demand to rise by 2.7 million barrels per day (bpd), or 2.7%, in 2023. It left this year’s growth forecast unchanged at 3.36 million bpd.

Oil use has rebounded from the pandemic-induced slump in 2020 and is set to exceed 2019 levels this year. The outlook for 2023 suggests a strain on supplies could persist as growth in non-Opec output, which has been hit by Russian losses, is expected to lag the rise in demand.

“In 2023 expectations for healthy global economic growth amidst improvements in geopolitical developments, combined with expected improvements in the containment of COVID-19 in China, are expected to boost consumption of oil,” Opec said in the report.

Opec’s demand forecast for 2023 is more optimistic than that of the International Energy Agency, another closely watched forecaster, as well as initial views from Opec delegates calling for a steeper slowdown due to high prices.

The 2023 forecasts assume there will be no escalation of the war in Ukraine and that risks such as inflation do not take a heavy toll on global economic growth, Opec said.

Opec  kept this year’s global economic growth forecast at 3.5% and forecast growth of 3.2% in 2023, adding uncertainty was skewed to the downside and upside potential “quite limited”.

Oil held on to an earlier decline after the report was released, trading below $103 a barrel and well off the near-record high of $139 it hit in March.

The supply outlook for 2023 suggests that the market could remain tight. Opec expects non-Opec  supply to rise by 1.7 million bpd, lagging demand growth and a slowdown from 2022. As a result, Opec  forecast the world will need 30.1 million bpd in 2023 from its members to balance the market, up 900,000 bpd from 2022.

That could be a stretch, since the group and allies including Russia, known as Opec +, have been struggling to deliver on pledged output hikes in 2022 to unwind huge cuts made in 2020.

Opec ‘s report showed Opec  output bucked that trend in June, rising by 234,000 bpd to 28.72 million bpd with increases led by Saudi Arabia and the United Arab Emirates.

The United States is expected to make the biggest contribution to non-Opec  supply next year although there is no acceleration expected in shale oil growth.

Opec  expects supply of US tight oil, another term for shale, to rise by 710,000 bpd in 2023, a slowdown from 880,000 bpd in 2022, despite high prices that in previous years have encouraged faster growth. (Global benchmark Brent crude tumbled to below $100 a barrel on Tuesday due to a stronger dollar, demand-sapping COVID-19 curbs in top crude importer China and fears of a global economic slowdown.

Brent crude futures were down by $7.62, or 7.1%, at $99.48 a barrel by 11:04 a.m. ET (1504 GMT). US West Texas Intermediate crude was down $7.69, or 7.3%, at $96.42.

“Crude trading under extreme pressure this AM as a defensive posture continues with consumer sentiment still in a depressed mode along with a COVID re-surface in China,” said Dennis Kissler, senior vice president for trading at BOK Financial, adding that a record dollar was triggering more selling liquidation.

The dollar index, which tracks the unit against a basket of six counterparts, earlier climbed to 108.56, its highest since October 2002. A stronger greenback usually weighs on oil prices as it makes the dollar-priced commodity more expensive for holders of other currencies. Investors have been dumping petroleum-related derivatives at one of the fastest rates of the pandemic era as recession fears intensified. Hedge funds and other money managers sold the equivalent of 110 million barrels in the six most important petroleum-related futures and options contracts in the week to July 5.

Fears of an economic downturn also pushed down the S&P 500 and the Nasdaq.

Renewed COVID-19 mobility curbs in China weighed on prices as well. Multiple Chinese cities are adopting fresh restrictions, from business shutdowns to broader lockdowns, in an effort to rein in new infections from the highly infectious BA.5.2.1 subvariant of the virus.

“Little hope is being assigned to Biden’s visit to Saudi Arabia unlocking more production from them or the UAE,” Jeffrey Halley, OANDA’s senior market analyst for Asia Pacific, said in a note.

Agencies