OPEC sees upside potential for oil demand as economy rebounds

OPEC said the recovery in global oil demand could surpass its forecasts this year as the rebound in economic activity and travel from the pandemic gathers pace.

The Organization of Petroleum Exporting Countries is already struggling to restore supplies quickly enough to satisfy the recovery in fuel consumption, sending crude prices to a seven-year high above $90 a barrel and intensifying the inflationary pressures for major economies.

In its latest monthly report, the cartel said that while there are a number of challenges – from the virus to inflation – global fuel use could grow by more than the 4.2 million barrels a day – or 4.3 per cent – that it’s currently projecting for 2022.

“Upside potential to the forecast prevails, based on an ongoing observed strong economic recovery,” the organization said in a monthly report. “Moreover, mobility is expected to gain further momentum, particularly with regard to the travel and tourism sector.”

An additional bump in demand would almost inevitably place further strain on the capabilities of OPEC and its partners, potentially leading to higher prices and discomfort for consumers. US President Joe Biden, whose efforts to rein in gasoline prices have foundered, discussed stabilising markets with Saudi Arabia’s King Salman on Wednesday.

The report showed that by OPEC’s own criteria market is tight, with inventories in developed nations about 202 million barrels below their average for the years 2015 to 2019 as of December.

Stockpiles have dropped as the economy recovers, with “GDP already reaching pre-pandemic levels, supported by fiscal stimulus, and global trade levels reaching an all-time high in volume terms,” according to the report.

OPEC and its partners are trying to gradually restart production halted during the pandemic, but issues ranging from under-investment to local instability are frustrating their efforts. The cartel’s 13 members increased output by just 64,000 barrels a day last month, rather than the scheduled 250,000 a day, according to the report.

As countries across the 23-nation OPEC+ alliance from Nigeria to Russia run into constraints, the remaining spare capacity is increasingly confined to Middle East heavyweights like Saudi Arabia, the UAE and Iraq.

While consumers complain of the distress that high prices are inflicting, Riyadh has resisted the suggestion that it could fill in the shortfall by tapping its idle reserves, contending that the individual quotas agreed by OPEC+ should be respected.

OPEC+ will next meet on March 2.