December 16, 2021
OPEC, the cartel of oil-producing countries, has raised its forecast for oil demand in early 2022, despite the growing threat of a return to global slowdown due to the Omicron variant of Covid-19. The group is also maintaining its previously scheduled forecast of a return to pre-pandemic consumption levels, with demand forecast to grow by 4.15 million bpd in 2022, surpassing the 100 million bpd in the third quarter, for the first time since 2019.
A report from the group’s research division predicts global crude oil consumption of 99.13 barrels per day in the first quarter of 2022, up 1.1 million from last month’s forecast. The report anticipates that “the impact of the new Omicron variant is projected to be mild and short-lived, as the world becomes better equipped to manage Covid-19 and its related challenges.” Some of the previously expected recovery in Q4 of 2021 has been shifted to next year, added the report.
Oil prices dropped 10% on 26 November, as fears grew of a return to pandemic lockdown and consequent drop in demand, before recovering gradually since. Rystad Energy predicted that if the variant spreads rapidly, triggering restrictions in economic activity and travel, oil demand could drop from the expected 99.1 million to 97.8 million bpd in December 2021, and to 94.2 million bdp in January. While Rystad predict a gradual return to pre-pandemic levels over 2022 as countries learn to live with Omicron, OPEC is clearly more optimistic about the resilience of the economy, and has not changed its plans to increase production by 400,000 bpd in January.
OPEC’s decision to raise production in January, announced in early December, raised eyebrows due to the persistent fragility in the market, and uncertainty in the wider economy. Even with the upwards revision of its forecast, OPEC’s plans for increased production will still lead to oversupply, resulting in a possible increase in global inventories. According to the report, restricted supply until now left inventories in developed nations 207 million barrels below their five-year average in October.
Nonetheless, investors are wary, keeping markets stable, with Brent Crude currently trading in the early $70 range. The World Health Organisation insists that Omicron is still a “very high” global risk, and restrictions on travel have started coming into force in European countries, though it is likely that policy responses to the pandemic will continue to vary widely between countries, reflecting uneven spread of the virus for a range of reasons. Although OPEC are currently working on the basis of relatively minimal impact of the new variant, they stressed that they are willing and able to change their forecast and reduce production accordingly.
