Oil market faces 'significant uncertainty', OPEC warns

OPEC left its forecast for global oil supply and demand largely unchanged on Monday as it warned that major unknowns such as Covid-19 cases in China and the impact of Western efforts to thwart Russian oil exports were weighing on the outlook for energy markets very uncertain.

In its closely watched monthly market report, the Organization of the Petroleum Exporting Countries modestly revised its forecast for global oil demand lower, while making small revisions to its supply forecasts and holding back on changes to its global economic growth forecasts.

The oil producers’ group cited a number of “significant uncertainties” clouding the picture for global oil supplies from the course of Russia’s war in Ukraine to a Led by the Group of Seven, it plans to cap Russian oil prices which analysts fear could further disrupt global oil supplies.

While keeping its forecast for economic growth and oil demand largely unchanged, OPEC also warned that the threat of “further energy supply disruptions” in the European Union – an apparent hint of the bloc’s upcoming plans to ban Russian oil imports – was endangered strengthening the deceleration of the continent and pushing it into recession.

OPEC cut its forecast for global oil demand growth this year by 100,000 barrels per day to 2.5 million barrels per day. It also lowered its 2023 demand growth forecast by 100,000 bpd to 2.2 million bpd.

After authorizing the largest-ever release from the U.S. Emergency Strategic Petroleum Reserve, the Biden administration has signaled it will soon try to replenish the stockpile. The WSJ explains how this strategy could lower gas prices and why some are skeptical it will work. Illustration: Ali Larkin

OPEC made minor adjustments to its oil supply expectations from non-cartel oil producers. It cut its forecast for non-OPEC supply growth in 2022 by 30,000 bpd to 1.90 million bpd. For 2023, it raised its forecast by 20,000 bpd to 1.54 million bpd.

The cartel left its forecasts for global economic growth steady at 2.7 percent this year and 2.5 percent in 2023.

Still reeling from the fallout from Russia’s invasion of Ukraine and the resulting disruption to global oil supplies, the oil market is gearing up for new sanctions against Russia is set to take effect early next month, threatening to further redraw global oil supplies.

On December 5, the EU is to ban the import of Russian crude oil while banning its companies from insuring and financing the export of Russian oil anywhere in the world. The UK has said it will also exclude Russian oil cargoes from its London-based shipping insurance market.

On the same day, the plan to limit Russian oil prices, prepared by the G-7 countries, should enter into force. The plan would allow Western companies to facilitate the export of Russian oil if the oil sells at or below a certain level.

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Another big uncertainty for oil markets: OPEC itself. The cartel and its Russian-led allies are set to meet a day before the sanctions take effect and consider adjusting their oil output. OPEC production alone accounts for about 40% of the world’s oil supply.

At its last meeting in early October, the group, known as OPEC+, agreed to tilt your output targets by 2 million barrels per day, the biggest reduction in production since the start of the pandemic. The move drew criticism from Western oil-consuming nations such as the US as it threatened to raise oil prices and increase inflationary pressures in the global economy.

Write to Will Horner c [email protected]

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