The Organization of the Petroleum Exporting Countries (OPEC) has maintained its forecast for growth in world oil demand this year at 2.3 million barrels a day (mb/d), averaging 101.9 mb/d. However, the organization has issued a warning that the outlook is subject to various uncertainties that include the trends and pace of economic activity in both OECD and non-OECD countries. The OECD comprises wealthy nations, and OPEC observed that its forecast for demand growth across these countries underwent a revision down for all four quarters. In contrast, demand growth forecasts for non-OECD countries were lifted due to better-than-expected economic improvements in China after it abandoned its zero-COVID policy.
Despite the unchanged demand forecast, OPEC and its allies, collectively known as OPEC+, have announced production cuts of more than one million barrels a day from May through the end of the year. The organization estimates non-OPEC liquids production growth this year to be 1.4 mb/d year-over-year, averaging 67.2 mb/d, which remains broadly unchanged from the previous month’s report.
The stability in the world oil demand forecast comes amid varying economic factors affecting both developed (OECD) and developing (non-OECD) nations. The group highlighted that the pace of economic activity in the developed world is impacted by the ongoing tapering of quantitative easing, ongoing inflation, and global geopolitical issues such as the Russia-Ukraine conflict. Developing countries, on the other hand, are grappling with energy bottlenecks and the implications of a phase-out from stimulative measures.
A significant development that has affected OPEC’s demand forecast is the decision by China, a non-OECD nation, to drop its stringent zero-COVID policy. As the world’s largest energy consumer, China’s economic recovery has extensive implications for global energy markets. So, improvements in its economy, as evidenced by the recently released Purchasing Managers’ Index data, have played a significant role in lifting oil demand forecasts for non-OECD countries.
The organization also revised its expectations for oil production growth in developed countries downwards across all four quarters. Factors cited for this range from weaker-than-expected performance in fields and facilities in the North Sea and Brazil, as well as unplanned maintenance and outages in the US. Some developed countries are also struggling with the low natural gas supply in their economies, affecting their ability to ramp up production.
To help balance the market and address these fluctuating factors, OPEC+ announced production cuts of more than one million barrels a day from May through the end of the year. This follows a cautious approach by the cartel, which seeks to prevent prices from surging too high and enable a robust economic recovery that will ultimately benefit the group’s members. However, this decision has faced criticism from some nations that are suffering from high fuel prices, including the US.
The continued uncertainty in the global economic outlook will influence OPEC’s demand forecasts in the months ahead. Factors such as inflation, the ongoing conflict between Russia and Ukraine, fluctuations in economic activity, and energy bottlenecks will be closely monitored by the organization and its allies. The steps taken by OPEC+ to balance the market, like the announced production cuts, will play a crucial role in determining the stability of global oil demand and supply in the coming months.
In conclusion, while OPEC has maintained its overall forecast for growth in world oil demand this year, there are many uncertainties in the picture. With shifting dynamics in both developed and developing economies, as well as the influence of global geopolitics, the organization’s forecasts will likely continue to be subject to revision. OPEC’s cautious approach to balancing the market through production cuts will also play a critical role in managing the uncertainties and ensuring oil demand and supply stability in the months to come. However, the situation remains fluid, and the organization and its allies will need to stay vigilant and adapt to changing circumstances in global energy markets.