Although oil demand is still growing, it will be less significant in 2023 than in 2022. OPEC’s latest report is, however, the subject of many questions.
July 2022 monthly report data
The Organization of the Petroleum Exporting Countries anticipates a relative drop in world demand. This slowdown can be explained by geopolitical tensions, the overall level of inflation and the risk induced by COVID-19. Growth is expected to be partly driven by China. The report draws on the country’s economic vitality and resilience in the face of the health crisis.
The forecast increase of 3.3 million barrels per day (bpd) for this year remains unchanged. Demand growth will be less marked in 2023, with an increase of 2.7 million bpd.
Oil consumption should exceed 2019 levels, but supply remains a major issue. At issue is the production capacity of non-OPEC countries, which may not keep pace with demand.
However, OPEC expects a general improvement in the international political climate in its report:
“In 2023, expectations of healthy global economic growth against a backdrop of improving geopolitical developments, combined with expected improvements in COVID-19 containment in China, should boost oil consumption.”
OPEC report questionable
Many unknowns remain, but the outlook is very optimistic. The organization supports estimates based on a moderate economic risk and the absence of escalation in Ukraine, both of which are highly uncertain.
The initial conclusions of delegates from OPEC and the IEA (International Energy Agency) are less encouraging. The latter take greater account of the effects of rising prices on current consumption and expected growth.
Similarly, production growth forecasts seem hard to meet. In order to balance a market destabilized by Russian losses, member countries will have to bear an increase of 900,000 bpd more than in 2022.
The under-investment of certain members in the oilfields has led to a drop in the volume extracted. Saudi Arabia in particular failed to meet its quota of 10.66 million bpd. Surplus production was then reduced, although prices reached record levels. This dynamic increases the uncertainty surrounding an increase in production.
A market still under pressure in 2023?
In order to meet these forecasts, an increase of 234,000 bpd to 28.7 million bpd was carried out in June. However, OPEC’s overall production capacity was reduced several years ago. On the one hand, by a decrease in drilling in 2020, and on the other, by surpluses between 2014-2016. The resulting decline in oil revenues is weighing on investment and acting as a delaying factor. Current difficulties are the result of past events.
Supply from outside OPEC is expected to come mainly from the United States in 2023, notably via shale oil. While price increases in previous years have helped the sector to grow, supply is set to increase from 710,000 bpd to 880,000 bpd by 2022.
While the current rise in oil prices is beginning to impact the sector’s growth, uncertain supply is preventing the market from easing. In the long term, this raises fears of a slowdown in the global economic recovery. Since the report was published, the price of a barrel of oil has fallen below $103, a marked change from the peak of $139 reached in March.
Many uncertainties remain, including with regard to the data put forward for 2022. In anticipation of the next monthly report, and as part of a forward-looking approach, crisogenic elements require particular attention.
