OPEC downgrades its Q4 2021 global oil demand forecast at a time when an energy crunch in Europe and US has surged the price of oil, delaying the timeline for a return to pre-pandemic levels for oil production.
The global oil demand forecast was pegged at 160,000 barrels per day (b/d), citing weaker economic factors in China and India, but indicated the market will remain tight for the rest of the year.
“A slowdown in the pace of recovery in the fourth quarter of 2021 is now assumed due to elevated energy prices,” according to OPEC’s monthly report.
Demand for OPEC crude is expected to average 29.57 million b/d over the fourth quarter, far higher than the output of 27.45 million b/d for October 2021, as recorded in the organization’s monthly report.
Even with OPEC planning to raise output through its allies by a combined 400,000 b/d monthly, this would not be enough to satisfy global demand as the US, Japan and India who are major consuming countries continue to press for an increase in supplies.
In anticipation of seasonal factors during the first half of 2022, demand for OPEC crude will drive down to 26.81 million b/d, the report stated. It is for this reason that OPEC ministers have underscored preference for caution than the show of aggression towards production.
OPEC and its allies said they “will continue to review the market conditions on a regular basis, reaffirming the participating countries’ commitment to ensure adequate supply and support efforts to maintain global oil market stability.”
In its analysis, OPEC noted a 12% rise in crude oil spot prices in October 2021, attributed to “strong oil market fundamentals, compounded by expectations of higher oil demand in the winter months from gas to oil switching”.
OPEC forecasts oil demand to decline in last quarter of 2021
OPEC said it expects oil demand to average 99.49 million barrels per day (bpd) in the fourth quarter of 2021, down 330,000 bpd from last month’s forecast. For 2022, demand will rise by 4.15 million b/d, unchanged from last month’s forecast, to hit 100.59 million b/d.
However, for non-OPEC production, forecasts remained the same from that of last month, at 63.64 million b/d year-on-year, and 66.6 million b/d for 2022, up 3.02 million b/d.
The report showed OPEC output rose in October 2021 by 220,000 bpd to 27.45 million bpd with top producer Saudi Arabia providing half the increase. Four of the 13 OPEC members pumped less due to a lack of capacity.
In its forecast, OPEC noted that many of its members are struggling to meet production quotas, which has contributed to recent market tightness.
For instance, Angola self-reported October 2021 crude production of 1.11 million b/d, far below its allocation of 1.36 million b/d, while Nigeria self-reported 1.23 million b/d, well below its cap of 1.63 million b/d.
The report also forecast more supplies from U.S. shale producers in 2022. OPEC projects that output of US shale will rise by 610,000 b/d in 2022, up from 200,000 b/d last month, after a contraction this year, as higher prices indicate more investment.
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