Currently, the outlook for crude oil demand is cast a shadow.
On October 12, local time, OPEC lowered its global oil demand growth forecast for this year and next in its monthly report, marking the fourth downward revision since April this year.
Specifically, OPEC predicts that global oil demand growth in 2022 is expected to be 2.64 million barrels per day, which is 460,000 barrels per day less than the previous forecast. Global crude oil demand in 2022 is expected to be 99.67 million barrels per day; OPEC also predicts that in 2023 Global crude oil demand growth is expected to be 2.34 million barrels per day, a decrease of 360,000 barrels per day from the previous expectation. Global crude oil demand in 2023 is expected to be 102.02 million barrels per day.
On October 13, the International Energy Agency (IEA) also lowered its crude oil demand growth forecast in its monthly report.
On October 13, the International Energy Agency (IEA) also lowered its crude oil demand growth forecast in its monthly report. The IEA slightly lowered its oil demand growth forecast for this year by 60,000 barrels per day to 1.9 million barrels per day, and sharply lowered its oil demand growth forecast for 2023 by 470,000 barrels per day to 1.7 million barrels per day. The IEA now expects total oil demand to be 99.6 million barrels per day in 2022 and 101.3 million barrels per day in 2023.
Affected by demand concerns, the strengthening of the U.S. dollar, and the continued vigorous interest rate hikes by major central banks, international oil prices fell by about 2% on October 12, falling for the third consecutive day, hovering around US$90. In early October, OPEC+ production cuts drove oil prices to rise sharply.
On the other hand, despite the slowdown in crude oil demand growth, after OPEC+ vigorously reduced production to support the oil market, many believe that oil prices may return to above US$100 in the fourth quarter.
Zhu Runmin, a senior economist in the oil industry, analyzed to a reporter from the 21st Century Business Herald that oil prices cannot be ruled out returning to US$100/barrel in the fourth quarter of 2022, but it should not be a sustainable equilibrium price. The combination of a strong US dollar and high oil prices means that oil-producing countries have grabbed a far higher share of the world’s wealth than they should actually get. This does not match the function and status of oil as the blood of modern industry and cannot play a very good role in the world economy. The role of promotion and support is, on the contrary, an inhibitory and destructive role. If this continues, the world economy can only respond to the unfavorable situation of a strong U.S. dollar and high oil prices through recession. The result is that both oil-producing countries and importing countries will lose.
OPEC+ production cuts may accelerate demand decline
The International Monetary Fund (IMF) warned this week that the colliding pressures of inflation, war-induced energy and food crises and sharply rising interest rates were pushing the world to the brink of recession. The IMF predicts that countries accounting for one-third of global output may contract next year. Some major European economies, including Germany and Italy, will enter a “technical recession” next year. Soaring energy prices and shortages will have a negative impact on output. cause impact.
Specifically, the IMF expects global gross domestic product (GDP) growth to slow to 2.7% next year, lower than the 2.9% growth forecast in July. In addition, the IMF maintained its 2022 growth forecast at 3.2%.
The lower demand outlook provided the rationale for OPEC+ to cut production last week. On October 5, local time, OPEC’s 45th Joint Ministerial Monitoring Committee (JMMC) and the 33rd OPEC+ Ministerial Meeting were held in Vienna, Austria. It was decided that starting from November 2022, OPEC+ will increase its total daily oil production to Downgraded by 2 million barrels.
Given that the previous output of most OPEC members is far from reaching the target, the IEA said that the actual production reduction may be around 1 million barrels per day, rather than the 2 million barrels per day announced by OPEC+. Capacity constraints from other OPEC members mean Saudi Arabia and the United Arab Emirates will shoulder the bulk of the cuts.
However, we need to be vigilant that OPEC+’s production cuts may further exacerbate demand destruction. The IEA warned that the impact of production cuts would exacerbate the intersection of high oil prices and weak global economic growth, both of which would undermine long-term demand for oil. Therefore, the IEA describes the production cuts as a lose-lose situation for oil producers and consumers. Oil buyers will have to bear higher prices in the short term, and oil producers will face the resulting weak demand.
According to the IEA, the continued deterioration of the global economy, coupled with the rise in oil prices triggered by the OPEC+ production reduction plan, is slowing down global oil demand. Under the impact of continued inflationary pressure and interest rate hikes, rising oil prices may become a global economy that is already on the verge of recession. turning point.
Rising oil prices have increasingly become an “unbearable burden” for the fragile global economy, and have also caused headaches for the Biden administration, which is about to face the “high school entrance examination.” As the U.S. midterm elections approach, controlling gasoline prices and inflation have become core issues in the campaign, which may determine control of the U.S. Congress.
Huge uncertainty hangs over the oil market
On the one hand, the gloomy demand outlook is suppressing oil prices, but on the other hand, uncertainty on the supply side continues to increase. Where will the volatile oil market go?
On October 12, local time, the Polish oil pipeline operator PERN issued a statement stating that a leak was detected in one of the two oil pipelines in the western section of its “Friendship” oil pipeline on the evening of October 11. This pipeline is one of the longest oil pipelines in the world and an important pipeline for transporting oil to Germany. The starting point of the pipeline is Russia. The northern section mainly transports Russian crude oil to Poland and Germany, and the southern section mainly supplies crude oil to Hungary and Slovakia.
From the current situation, there is no sign of leakage.��It was caused by man-made damage, but the vulnerability on the supply side still sounded the alarm for the energy market.
The IEA warned that after OPEC+ slashed production, at a time when the market is extremely fragile, there are almost no additional sources of supply to make up for the gap, which will further tighten the global oil market. New sanctions against Russia by the G7 and the EU are also likely to further tighten global supplies.
The EU will suspend the purchase of most crude oil from Russia from December 5 this year, and the EU’s ban on Russian petroleum products will take effect from February 5 next year. The IEA previously warned that as the EU import ban takes effect, the decline in Russian oil production will accelerate. By early 2023, Russia’s output will be close to 2 million barrels per day, a drop of about 20%.
Zhu Runmin analyzed to reporters that the impact of the international situation on the oil market mainly includes two aspects. One is the impact on the supply side, which leads to abnormal supply reduction or even interruption, which will drive up prices. This situation is common, such as the impact on Russia in Europe and the United States. Restrictions on oil exports, sanctions on Iran, etc.; on the other hand, the impact on the demand side, leading to reduced demand and oversupply, will drive supply-side prices down, which is relatively rare.
In addition, the potential negative impact of oil price caps also requires caution.
In this regard, UBS commodity strategist Dominic Schnider analyzed that at a time when OPEC+ has decided to cut production, the price ceiling plan led by the United States and other Western countries may reduce the daily supply of crude oil by another 1 million barrels, which may lead to a decline in oil prices. Prices are surging again. Russia’s reaction to the price cap plan could further tighten the market, sending crude oil prices to $125 a barrel.
After the OPEC+ production cuts were announced, Goldman Sachs raised its oil price forecast, raising its Brent crude oil price forecast for the fourth quarter of this year by US$10 to US$110/barrel. Goldman Sachs believes that OPEC’s decision to cut production in November and December is “very positive” for the oil market.
Similarly, JPMorgan Chase also said that continued underinvestment in capital expenditures by energy companies, the continued inability of Iranian oil to enter the market, and OPEC’s production cuts may allow oil prices to surge back above $100 per barrel in the fourth quarter of this year.
However, given the deteriorating global economic outlook, even if oil prices break through $100 in the future, it may be difficult to maintain it for a long time. Demand is weak due to concerns about economic recession, and there are many supply-side risks. The long and short forces are competing fiercely. Which side may have the upper hand in the future?
In Zhu Runmin’s view, during the strong U.S. dollar phase, weak demand has the internal motivation to prevail; after the U.S. dollar shifts from a strong cycle to a weak cycle, supply-side risks will become stronger.
It should be noted that the US dollar, which is near 20-year highs, is continuing to put pressure on oil prices. He Ning, chief macro analyst at Huaan Securities, told reporters that the current rise in the U.S. dollar index is due to the fact that the Federal Reserve has entered a rapid interest rate hike cycle and the economic growth prospects are better than those in Europe, which provides a solid foundation for the continued rise of the U.S. dollar; On the one hand, the global situation has triggered an increase in the safe-haven demand for the U.S. dollar, coupled with factors such as relatively dovish monetary policies in Japan and the United Kingdom, which have jointly promoted this round of upward movement of the U.S. dollar. The current upward trend in the U.S. dollar index is driven by both internal and external factors. In the short term, the upward trend in the U.S. dollar index may not be over yet, and may even hit the high of 120.9 in 2001.
For the future, oil prices may still fluctuate violently amid the long-short war, and huge uncertainty surrounds the oil market. Royal Bank of Canada (RBC) predicts that Brent crude oil prices are expected to reach US$115-120/barrel by mid-2023, assuming all factors tend to be positive. With the macroeconomy weak but fundamentals favorable, Brent crude oil prices are expected to reach US$90-95/barrel in mid-2023. But if the global economy falls into a deep recession and leads to a sharp reduction in demand, oil prices could fall below $60 a barrel next year.
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