OPEC keeps oil demand forecast steady, but sees 'upside potential' on pandemic recovery

As fears over the omicron variant fade, OPEC on Feb. 10 largely maintained its 2022 global oil demand forecast, projecting 4.15 million b/d of year-on-year growth, but said the world's continued emergence from the pandemic could prompt it to boost that projection.

With many oil producers inside and outside of OPEC struggling to raise their oil output, a further rise in demand would put increasing upward pressure on crude prices, which are already causing economic strain in many key consuming countries and driving record inflation.

In its latest monthly market report, OPEC said oil demand would average 100.80 million b/d in 2022, returning to pre-pandemic levels in the second half of the year, after averaging 96.65 million b/d in 2021.

The market will continue to be challenged by COVID-19, the report said, with lockdown measures, supply chain disruptions, inflation in key markets and labor shortages hampering economic growth.

However, "upside potential to the [demand] forecast prevails," OPEC said, with global trade already reaching all-time highs.

"Mobility is expected to gain further momentum, particularly with regard to the travel and tourism sector," it added.

Meanwhile, growth in oil supply from outside of OPEC was projected lower by 60,000 b/d for 2021 at 610,000 b/d, with Brazil, China, Canada, Ecuador and the UK seeing unexpected lower output. For 2022, non-OPEC supply growth was forecast at 3.02 million b/d for 2022, unchanged from last month's report.

As a result, OPEC raised its estimate of demand for its own crude to 28.92 million b/d for 2022.

With the bloc pumping 27.98 million b/d in January, a mere 60,000 b/d increase from December, according to secondary sources used by OPEC to track output, the group appears increasingly challenged to meet that demand.

Many analysts have noted shrinking OPEC spare production capacity, which is mostly concentrated in Saudi Arabia and the UAE, while several other countries appear to be already pumping as much as they can or at severe risk of disruptions.

Oil price discussions

OPEC, along with 10 Russia-led allies, has been gradually easing back the extreme production quotas it instituted at the start of the pandemic, aiming to return to pre-pandemic output by late 2022, though the majority of members are producing well under their allocations.

The OPEC+ alliance is next scheduled to meet March 2 to decide on April output levels, and is likely to see ratcheting pressure from key crude customers if prices do not moderate.

US President Joe Biden held a call with Saudi King Salman late Feb. 9 to discuss the oil market, among other topics, with the state-run Saudi Press Agency saying the king remained steadfast in his support for the OPEC+ alliance. Meanwhile Indian officials said they have been in dialogue with OPEC representatives to renew their concerns over elevated oil prices.

"Given the experience of the past two volatile years, vigilant monitoring of pandemic developments, along with a highly flexible approach, will remain key to successfully maintaining oil market stability," OPEC said in its report.