OPEC oil demand forecast holds steady as economic clouds gather

OPEC left its forecast for 2023 global oil demand growth steady for a fourth month on Tuesday, though the producer group warned that the world economy faced rising uncertainty and slower growth in the second half of the year.

Global oil demand this year will rise by 2.35 million barrels per day (bpd), or 2.4%, the Organization of the Petroleum Exporting Countries (OPEC) said in its monthly report. This was virtually unchanged from the 2.33 million bpd forecast last month.

“There are rising uncertainties regarding economic growth in the second half of 2023 amid ongoing high inflation, already elevated key interest rates and tight labour markets,” OPEC said in its report.

“Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe might be resolved,” it added, referring to Ukraine.

OPEC+, which comprises OPEC, Russia and other allies, has been taking more steps to support the oil market in 2023. On June 4 the group announced its second package of output cuts since April.

Crude prices, however, have remained under pressure from concern over slowing economic growth and demand.

The Brent crude benchmark was little changed after the report was released, maintaining a 2.1% gain to trade above $73 a barrel.

Chinese oil demand is now expected to rise by 840,000 bpd, OPEC said, up from the 800,000 bpd forecast last month, adding to a recovery after strict COVID-19 containment measures were scrapped.

OPEC left its 2023 global economic growth forecast at 2.6% and said momentum was slowing. A graphic in the report showed that growth could slow to 0.1% quarter on quarter in the final three months of the year.

Potential upside factors, other than a dop in inflation, include an even stronger than previously expected economic rebound in China and the United States being able to maintain its first-half momemtum, OPEC said.

The report also showed OPEC’s oil production fell in May, reflecting the impact of earlier output cuts pledged by OPEC+ as well as some unplanned outages.

The OPEC report said its May output fell by 464,000 bpd to 28.06 million bpd as voluntary cuts, promised by Saudi Arabia and other members, took effect.

Last year, with prices weakening, OPEC+ agreed to a 2 million bpd cut in its output target from Novembe – its largest reduction since the COVID-19 pandemic in 2020.

On April 2 several OPEC+ members pledged additional voluntary cuts.