OPEC Raises Crude Oil Demand Forecast for the First Quarter of Next Year

The Organization of Petroleum Exporting Countries (OPEC) raised its crude oil demand forecast for the first quarter of next year on the 13th. Some media analyses suggest that although the impact of the mutated strain of Omicron on the global crude oil market will be mild, its impact on crude oil demand still cannot be ignored.

Upward revision of global crude oil demand forecast

OPEC raised its global oil demand forecast for the first quarter of next year in a report on the 13th, but kept its expectation of oil demand growth for the whole of next year unchanged. OPEC raised its global crude oil demand forecast for the first quarter of 2022 by 1.11 million barrels per day (bpd) to 99.13 million bpd.

OPEC also raised global oil demand figures for the first half of 2021, but lowered global oil demand for the third and fourth quarters of 2021, leaving full-year oil demand expectations for this year unchanged. OPEC said some of the demand recovery originally expected to occur in the fourth quarter of this year now appears to be achieved in the first quarter of next year, and demand recovery is expected to be more stable in the second half of next year.

The report said the organization did not change its forecast for global oil demand growth, which is expected to grow by 5.7 million barrels per day in 2021 and 4.2 million barrels per day in 2022. OPEC forecasts global oil demand at 100.8 million barrels per day in 2022, compared with 96.6 million barrels per day this year. That's 200,000 bpd more than the November forecast. The last time global oil demand exceeded 100 million barrels per day was in 2019, according to OPEC data.

The report also showed that OPEC's production increased as it and non-OPEC producers gradually unwound record production cuts implemented last year.

The report showed that OPEC's production increased by 290,000 bpd to 27.72 million bpd in November due to increased output from the top two producers, Saudi Arabia and Iraq, as well as a return to production shutdowns in Nigeria. This month, OPEC also stabilized its forecast for U.S. shale oil growth at 0.6 million bpd in 2022. The forecast for overall non-OPEC supply growth in 2022 remains unchanged. The report notes that for now, OPEC has room to increase production further from November.

At the same time, OPEC believes that high inflation could prompt central banks in major economies to take action, while the prospect of tighter monetary policy could pose an additional challenge to debt-ridden emerging economies. In addition, OPEC's global growth forecasts for this year and next remain unchanged as continued strong growth in the world economy continues to be challenged by uncertainty over the spread of mutated strains of omicron, the pace of global vaccine rollout and global supply chain bottlenecks.

Omicron's impact cannot be ignored

The Omicron strain of the new crown variant virus has recently spread rapidly in many parts of the world, accounting for an increased proportion of new confirmed cases of new crowns in many European countries. This news has once again overshadowed the prospects for a recovery in crude oil demand.

British health authorities expect the Omicron strain to become a major epidemic strain in the capital London within 48 hours, and said the first case of death from the Omicron strain has been reported in the UK. Norwegian Prime Minister Strayer said on the 13th that Norway will further tighten restrictions on the outbreak this week to prevent the spread of the virus.

He said, "The situation is serious. The rate of spread of the infection is too high and we must act to limit this development." Denmark expects the strain to become "mainstream" in the capital, Copenhagen, within the week. Tony Holohan, chief medical officer of Ireland's Department of Health, said the health department expects 11 percent of new cases to be infected with the Omicron strain, compared with 1 percent a week ago.

The Irish government has stepped up restrictions against the disease, closing nightclubs and setting caps on the number of people and operating hours for bars, restaurants and indoor events.

In response, the OPEC report concluded that the impact of the Omicron variant strain will be mild and short-lived as the world adapts to the changing epidemic and countries around the world better respond to the New Crest Pneumonia outbreak and its associated challenges.

OPEC emphasized that increased vaccination rates have proven to be important in mitigating the economic impact of the virus. However, the World Health Organization (WHO) said the Omicron mutant strain, which has spread in more than 60 countries, poses a "very high" global risk and there is some evidence that it has broken through vaccine protection.

Phil Flynn, senior market analyst at Price Futures Group, said that while omicron so far does not appear to be fatal, concerns remain about its potential damage to oil demand. Fouad Razakazada, market analyst at online multi-asset trading brokerage Wisdom Group, said the partial or full closure imposed by several countries due to the rapid spread of the Omicron strain has raised serious concerns about crude oil demand, and it looks like the new crown pneumonia outbreak has again triggered a drop in oil prices.

Raza Kazada said that even the implementation of mild restrictions like home-based work has reduced oil demand due to a significant reduction in the number of people commuting to work. While crude oil futures prices are not expected to see a significant drop, oil prices are likely to fall for a short while. In addition, the difficulties faced by some emerging market countries and oil-consuming countries are raising more concerns.

Oil price trends face many uncertainties

The analysis points out that oil supply and demand fundamentals have a decisive role in the rise and fall of short-term international oil prices, and the future oil supply and demand relationship faces a lot of uncertainty, which is currently focused on two major factors: the long-tail effect of the epidemic and the global carbon constraint target.

Specifically, repeated epidemics will reduce economic and travel mobility, and reduced energy demand and carbon emissions will make the probability of oil consumer prices being pulled down even higher. At present, the global economy is still in the process of recovery, the epidemic in various countries is still severe, and some countries re-take control initiatives, which may drag down demand expectations, which brings a lot of uncertainty to the future price of crude oil.

The U.S. Department of Energy announced on the 10th that it will sell 18 million barrels of strategic crude oil reserves on December 17 to address market supply disruptions, in accordance with measures announced by the U.S. President in November. OPEC said the Biden administration has been complaining about the inflationary effects of higher oil prices, even using its strategic oil reserves to increase supply and thus depress oil prices.

In addition to the uncertainty caused by the epidemic, supply chain problems and rising inflation in some of the world's richest countries have created challenges for the crude oil market.

At present, the international market is also filled with many divergent judgments on oil prices. Some industry insiders believe that oil prices will face downward pressure next year due to increased supply from OPEC and non-OPEC producers and the continued recovery of U.S. shale oil production.

And some big Wall Street banks are bullish on long-term oil prices, arguing that OPEC and non-OPEC producers' control over prices could be a key factor in pushing up oil prices in the coming years, with prices likely to reach $150 per barrel by 2023.

OPEC and non-OPEC oil producers will next meet on Jan. 4, 2022. Earlier this month, they agreed to continue the existing policy of monthly production increases. Iraq's oil minister said on 12 January that he expects OPEC to maintain its current policy of gradually increasing supply by 400,000 bpd per month at its next meeting.

In addition, investors will also be watching monetary policy resolutions from the European Central Bank, the Federal Reserve, the Bank of England and the Bank of Japan this week, and these decisions may include an early end to stimulus programs, among others.