Opec has stuck with its forecast that world oil demand will exceed pre-pandemic levels in 2022, although the producer group said Russia’s invasion of Ukraine and developments around the coronavirus pandemic pose a considerable risk.

In a monthly report released on Tuesday, the Organization of the Petroleum Exporting Countries (Opec) maintained its forecast that world oil demand would rise by 3.36 million barrels per day (bpd) in 2022, extending a recovery from 2020’s slump.

The Ukraine war sent oil briefly above $139 a barrel in March, the highest since 2008, worsening inflationary pressures. COVID lockdowns in China, where a Beijing outbreak has prompted the resumption of mass testing, have curbed oil demand.

“Looking ahead, current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels,” Opec said in the report.

“Inflationary pressures are likely to persist and it remains highly uncertain as to when geopolitical issues may be resolved. Nevertheless, oil demand is forecast at healthy levels in the second half of this year.”

The report expects world consumption to surpass the 100 million bpd mark in the third quarter, in line with earlier projections, and for the 2022 average to reach 100.29 million bpd, just above the pre-pandemic rate in 2019.

Opec kept this year’s global economic growth forecast at 3.5%, adding the downside “remains significant” and the upside potential “quite limited”.

Oil extended an earlier gain after the report was released, trading further above $123.

Opec and its allies, which include Russia, known as Opec+, are ramping up output in monthly increments after record cuts put in place during the worst of the pandemic in 2020.

The growth forecast for non-Opec supply in 2022 was reduced by 300,000 bpd to 2.1 million bpd. Opec cut its forecast for Russian output by 250,000 bpd and left its US output growth estimate steady.

Opec expects supply of US tight oil, another term for shale, to rise by 880,000 bpd in 2022, unchanged from last month, despite high prices that in previous years have encouraged growth. Oil prices rose about 2% on Tuesday as tight global supply outweighed worries that fuel demand would be hit by a possible recession and fresh COVID-19 curbs in China.

Brent crude futures rose $2.60, or 2.1%, to $124.87 a barrel at 1405 GMT, while US West Texas Intermediate (WTI) crude rose $2.42, or 2% to $123.35 a barrel.

Tight supply has been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports.

Other Opec+ producers are struggling to meet their production quotas and Russia faces bans on its oil over the war in Ukraine.

“The continuing squeeze on refined products globally, as well as a lack of investment to bring online more supplies from OPEC members, or other sources, means lost Russian production is nowhere near being covered by global markets,” said Jeffrey Halley, senior market analyst at OANDA, in a note.

UBS raised its Brent price forecast to $130 a barrel for end-September and to $125 for the subsequent three quarters, up from $115 previously.

“Low oil inventories, dwindling spare capacity, and the risk of supply growth lagging demand growth over the coming months have prompted us to raise our oil price forecast,” the bank said.

Ratings agency Fitch raised its Brent and WTI price assumptions for 2022 by $5 to $105 and $100 a barrel, respectively.

The market will be awaiting weekly US inventory data from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday for a view of how tight crude and fuel supply remain.

Six analysts polled by Reuters forecast U.S. crude inventories to have fallen by 1.2 million barrels last week, while gasoline stockpiles rose 800,000 barrels and distillate inventories, which include diesel and heating oil, were unchanged.

On the demand side, China’s latest COVID outbreak traced to a bar in Beijing has raised fears of a new phase of lockdowns just as restrictions in the country were being eased and fuel demand was expected to firm.

In its monthly report, the Organization of the Petroleum Exporting Countries kept to its forecast that world oil demand will exceed pre-pandemic levels in 2022, but said Russia’s invasion of Ukraine and developments related to the coronavirus pandemic pose a considerable risk.

Reuters