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World oil market prospects for the second half of 2022

The global economy in 2022 continues to be fraught with uncertainty. The first quarter of the year showed a weakening growth trend amid strongly rising commodity prices and a surging Omicron wave, both of which dampened the economic dynamic, particularly in the advanced economies and China. Nevertheless, economic growth is forecast to pick up towards the end of 2Q22.

Recently, economic momentum has been building, especially in the contact-intensive services sector, which includes travel and transportation, leisure and hospitality. This renewed activity is expected to lead into the summer holiday season of the northern hemisphere, supported by still-sufficient savings in advanced economies to be spent on pent-up demand. A similar seasonal dynamic was observed during the summer months of pandemic years 2020 and 2021. However, once the summer holidays are over, it will remain to be seen to what extent inflation, i.e. rising cost of living, financial tightening and rising geopolitical uncertainty, dampen the growth dynamic towards the end of the year (Graph 1).

Turning to the oil market, global oil demand is anticipated to average 101.8 mb/d in 2H22, up from 98.7 mb/d on average seen in 1H22. For the year, world oil demand is forecast to grow by 3.4 mb/d (see Graph 2). Improving mobility in major economies, as well as seasonal containment of the pandemic is projected to support gasoline and distillate demand. Oil demand growth in the OECD is forecast to average 1.2 mb/d y-o-y in 2H22, with OECD Americas remaining the largest contributor to oil demand growth. In terms of main products, gasoline is expected to lead oil demand growth in the region, closely followed by LPG, middle distillates and naphtha. In the non-OECD, oil demand is estimated to increase by 1.6 mb/d in 2H22 y-o-y, driven mostly by China, India, Other Asia and the Middle East. The rapid containment of COVID-19 in China is expected to support a healthy rebound in economic momentum in the region. In terms of products, middle distillates are projected to be the main contributor to growth, followed by gasoline, LPG and naphtha. Following estimated growth of 2.2 mb/d y-o-y in 1H22, non-OPEC liquids supply is forecast to grow by 2.1 mb/d y-o-y in 2H22. For the entire year, non-OPEC liquids supply is projected to grow by 2.1 mb/d y-o-y (Graph 2).

On a regional basis, OECD liquids supply is expected to grow by 1.7 mb/d y-o-y in 2H22, mainly in the US with a projected increase of 1.2 mb/d, and additional incremental production coming from Canada and Norway. However, liquids supply from the non-OECD region is forecast to increase only by 0.3 mb/d y-o-y in 2H22. Lower production from Russia is forecast to be offset by higher output in other regions like Latin America. However, the second half of the year remains highly uncertain due to geo-political developments in Eastern Europe.

Looking ahead, current geopolitical developments and the uncertain roll-out 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. Inflationary pressures are likely to persist and it remains highly uncertain as to when geopolitical issues may be resolved. Nevertheless, oil demand is forecast at healthy levels in the second half of this year. In order to meet this incremental demand, the countries participating in the Declaration of Cooperation (DoC) decided in their 29th Ministerial Meeting held on 2 June 2022 to advance the planned production adjustments of September 2022 in an ongoing endeavour to ensure market stability.
Source: OPEC

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