OPEC’s latest forecast for oil demand fits with a plan for it and its allies to boost oil supplies and cool prices which are near their highest levels in two and a half years.
OPEC forecast a gradual recovery in demand for its crude this year and next, as the group closes in on a deal to revive the production still shuttered since the pandemic.
The need for supplies from the Organization of Petroleum Exporting Countries will continue to climb, remaining well above the group’s current output and exceeding pre-virus levels by the second half of 2022. But it will go through a lull in the first quarter that could see the global market return to surplus, the group indicated.
“Looking ahead to 2022, risks and uncertainties loom large and require careful monitoring to ensure the recovery from the Covid-19 pandemic,” OPEC said in its monthly report, which contained the first detailed estimates for next year.
The mixed outlook fits with plans by OPEC and its allies – yet to be ratified – to gently restore the vast amounts of production they still have offline in monthly tranches of 400,000 barrels a day. Before that road map can be approved, the group must first resolve a spat between the United Arab Emirates and Saudi Arabia.
The two countries have made progress in resolving a dispute over what the UAE says is an unfairly low output limit. If they can overcome the bitter impasse, the coalition can proceed with restarting the idled barrels.
International oil prices are trading near their highest level in 2 1/2 years, at about $74 a barrel in London, as fuel consumption roars back in the U.S. and China with the lifting of lockdowns. Yet crude remains volatile amid threats from coronavirus variants, and fears that OPEC’s internal clash could fray its cohesion.
The analysis published on Thursday by the OPEC secretariat’s Vienna-based research department underscores why the cartel wants to move carefully – and why Abu Dhabi’s insistence on ramping up output was initially rebuffed.
OPEC predicts that global oil demand will climb by 3.3 million barrels a day in 2022 – about 3.4% – and surpass 100 million barrels a day in the third quarter for the first time since the coronavirus emerged. But before reaching that level, consumption will suffer a relapse in the first quarter, slipping back to 97 million a day.
Much of the rebound in demand will be satisfied by a revival in supplies from OPEC’s rivals. Non-OPEC production will increase next year by 2.1 million barrels a day, or 3.3%, with about a third of the growth coming from the cartel’s long-standing competitor, the U.S.
Demand for crude from the organization will exceed 30 million barrels a day in the second half of 2022, substantially above the 26 million it pumped in June. That ought to allow OPEC and its partners, who have already restored about 40% of the output cut during the pandemic, to produce at near-normal levels.
“Ongoing broad-based stimulus measures and high saving rates in advanced economies are forecast to lead to a release of pent-up demand in the second half of 2021, which will carry over into 2022,” the organization said.
Yet in the first quarter of 2022, the call on OPEC’s crude will retreat to 26.4 million barrels a day — below the level it’s likely to pump this month once scheduled increases are made. The alliance’s provisional plan to drip-feed the return of more barrels in coming months stands to make that surplus even bigger.
That soft patch may help explain why Riyadh is pushing to ensure that the OPEC+ agreement to restrain output continues beyond its scheduled expiry in April.