The Organization of the Petroleum Exporting Countries (OPEC) has forecast that the global demand for oil in 2023 will grow but at a slower pace compared to 2022, citing global economic growth and improved COVID-19 containment to be the drivers of this growth.
This information was disclosed by the international organization in its Monthly Oil Market Report -July 2022.
OPEC projects global oil demand to increase by 2.7 million barrels per day (mb/d), with a 0.6 mb/d rise coming from the OECD and non-OECD demand-pull pegged at 2.1 mb/d, mostly in China and India. It left the growth forecast for the remaining of 2022 (3.4 mb/d) unchanged, however exceeding that of 2023.
A few months after COVID-19 spiraled out of control in 2020, there was a decline in the global oil demand and projections that its recovery will take a long time. However, less than two years later, the predictions were inconsistent with market realities as oil use bounced back from the pandemic-induced plunge of 2020 and is set to exceed 2019 levels this year, despite the impact of the war in Ukraine, inflation and strict COVID mitigation responses in China.
In 2023 the expectation that major economies will revert towards economic growth amid the recent geopolitical developments and progress in COVID-19 containment, particularly in China, will spur global economic growth and have a pass-through effect on oil demand, according to OPEC.
OPEC said that “world GDP growth in 2023 is forecast at 3.2%. This assumes that the ramifications of the pandemic, geopolitical developments in Eastern Europe, and global financial tightening amid rising inflation do not negatively impact the 2023 growth dynamic to a major degree”.
According to OPEC, its 2023 projection presumes there will not be an upswing in the war in Ukraine, and that global financial tightening in the light of the growing inflation does not negatively impact the 2023 economic growth potential to a major degree.
However, OPEC is concerned that rising fuel prices may lead to oil demand disruption. According to some OPEC delegates, demand destruction is likely to take a toll on the use of oil in the coming months.
What is OPEC Projection on the Supply Side
The oil-producing group forecasts the non-OPEC oil supply to grow by 1.7 million barrels per day, falling behind demand growth for the same period. This suggests that the market could remain tight if supply from OPEC does not make up for the supply shortages.
Due to this anticipated lag arising from strong oil demand growth, OPEC projects an increase in the demand for its crude by an average of 30.1 million barrels per day (mb/d) and thereby causing OPEC oil supply to increase in 2023 by 0.9 mb/d year-on-year.
What You Should Know
Because consumption levels remain strong, notably in the developed economies, with an anticipated improvement, especially in services sectors like travel and transportation, leisure and hospitality, oil demand in 2023 is expected to be supported by the solid economic performance in major consuming countries, as well as improved geopolitical developments and containment of COVID-19 in China.
There are however possibilities of drawbacks, originating from the war in Ukraine, the continued pandemic, rising inflation, elevated supply chain issues, high sovereign debt levels in many regions, and expected monetary tightening by central banks in the US, the UK, Japan and the Euro-zone, according to OPEC.