OPEC says war threatens to slow pace of oil demand rebound

Oil barrels Source: iStock

OPEC warned that the conflict in Ukraine and the persisting pandemic pose a threat to the strong recovery in oil demand it’s expecting in the second half of the year.

Global oil consumption is set to climb by 3.1 million barrels a day to average 101.8 million a day in the second half, surpassing pre-Covid levels, the Organization of Petroleum Exporting Countries said Tuesday. Yet it cautioned that the rebound could be derailed by inflationary pressures, virus outbreaks and the economic fallout from Russia’s war in Ukraine.

“Current geopolitical developments and the uncertain rollout of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels,” the group’s Vienna-based research department said in its monthly market report.

The cartel and its allies surprised traders earlier this month by agreeing to speed up the return of production halted during the Covid crisis, assenting to US entreaties after months of refusal.

President Joe Biden is planning a visit to group leader Saudi Arabia in the coming weeks, as the inflationary pressure inflicted by the market turmoil forces him to reverse an initially tough stance toward the kingdom. 

The organization’s own data indicate that world markets will tighten sharply unless it opens the taps.

An average of 29.65 million barrels a day will be needed from the group during the third quarter, the report showed. Yet OPEC’s 13 members pumped 28.51 million barrels a day in May, with their output slipping by 176,000 a day amid renewed disruption in Libya. 

Most nations of the group, and its allies in the OPEC+ coalition, are unable to boost production further as they struggle with diminished investment and operational outages. Spare capacity is confined to the core members in the Persian Gulf, and even their untapped supplies may be eclipsed by the losses caused by sanctions on Russia.

© 2022 Bloomberg L.P.

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