Amid looming fears that recession will crimp global oil demand, the Organization of Petroleum Exporting Countries (OPEC) has done a downward revision of its global oil demand growth in H2 2022 by 300,000 (0.3mb/d) daily barrels to 3.1mb/d stemming from expectations of a resurgence of COVID-19 restrictions and ongoing geopolitical uncertainties.
This is according to OPEC’s latest Monthly Oil Market Report.
In July 2022, oil price value (using the
OPEC Reference Basket) alongside their
perspective crude oil benchmarks, declined sharply by $9.17 per barrel to $108.55 per barrel despite a robust physical market fundamental that has continued to underpin the market.
Consequently, the West and North African Basket components – Bonny Light, Djeno, Es Sider, Girassol, Rabi Light, Sahara Blend, and Zafiro – declined by $10.18 month on month in July, or 8.2% on average to $114.36 per barrel.
In Nigeria, data obtained from the CBN put it that price of the Bonny Light Basket averaged $123.03 per barrel in July owing to elevated volatility in the global market.
Thus, the West African Benchmark closed the month of July at $121.51 per barrel from $124.55 per barrel at the start of the month.
This decline may be attributed to the lower output levels leading to supply shortage amid the increase in output by 6 million daily barrels to 1,183 tb/d in July from 1,176 tb/d in June.
Though the fundamentals of the global oil market maintained a strong recovery to pre-COVID-19 levels for most of the first six months of 2022, there is the emergence of signs of slow global oil demand and slow economic growth at large.
However, global oil supply has risen steadily this year, while ongoing low overall investment in the upstream and capital discipline are limiting non-OPEC oil supply growth potential.
World oil demand in 2022 at 3.1 mb/d, according to OPEC looks healthy, including the recently observed trend of burning more crude in power generation but the total demand for oil is expected to stay around 100 mb/d on average in 2022.
On the hand, the global supply is forecast to grow at 2.1 mb/d in 2022 just like was reported in the last assessment.
This translates to unchanged expectations for the year.
However, the drivers of this growth in 2022 are expected to be from the US, Canada, Brazil, China, and Guyana, while production is expected to decline mainly in Indonesia and Thailand.
Looking ahead, a still-solid economic performance in major oil-consuming countries, as well as improving geopolitical developments and improvement of COVID-19 in all regions, is expected to drive oil demand next year.
However, uncertainty regarding the operational and financial aspects of US production, as well as the geopolitical situation in Eastern Europe remains high, according to the Oil Cartel.
Our view is that the down-at-heel supply potential and declining output levels of some major producers are hugely limited by the ongoing low overall investment in the upstream and capital discipline in some of these economies.