OPEC Reduces Global Oil Demand Growth Forecast Due to Russia-Ukraine Conflict

The Organization of Petroleum Exporting Countries (OPEC) lowered its prediction for global oil demand growth in 2022 on Tuesday, citing the impact of Russia’s invasion of Ukraine, growing inflation as crude prices rise, and the recurrence of the Omicron coronavirus variety in China.

In a monthly report, OPEC predicted that global demand will climb by 3.67 million barrels per day (bpd) in 2022, a 480,000-bpd decrease from its previous prediction. Russia’s invasion of Ukraine in February pushed oil prices above $139 a barrel, the highest since 2008, exacerbating inflationary pressures. Crude has subsequently declined as the US and other countries revealed intentions to use strategic oil reserves to enhance supplies, but it remains over $100.

“While both Russia and Ukraine are expected to have recessions in 2022, the rest of the world economy will be severely damaged,” OPEC warned in the study. “The sharp rise in commodity prices, along with persistent supply-chain bottlenecks and COVID-19-related logistical delays in China and elsewhere, is fueling global inflation.” Nonetheless, global oil demand is anticipated to exceed 100 million bpd in the third quarter, as predicted by OPEC.

According to OPEC, the world utilised more than 100 million barrels of oil per day (bpd) in 2019. OPEC and its partners, including Russia, are undoing record output restrictions implemented in 2020 and have refused Western demands to increase supply at a quicker rate. OPEC avoided the Ukraine issue at its most recent meeting, sticking to a previously agreed-upon plan to increase its monthly output target by 432,000 bpd in May.

Underinvestment in oilfields by several OPEC members, caused in part by the epidemic, means the club has been unable to fully deliver on its projected output increases. According to OPEC’s report, OPEC output increased by just 57,000 bpd in March to 28.56 million bpd, trailing the 253,000 bpd increase allowed by the OPEC agreement.