Oil demand shows signs of waning as the global economy slows, bringing the world crude market close to balance, OPEC officials said Thursday in a new outlook.

The Saudi Arabia-led cartel cut its world oil demand outlook by 260,000 b/d from an earlier forecast to about 100 million b/d for 2022. It held its expectation for next year to 102.7 million b/d.

OPEC cited slowing economic conditions across the globe, notably including the United States. The U.S. government earlier this month reported that gross domestic product shrank in both the first and second quarters of 2022.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

OPEC last month had downgraded its global economic growth forecasts for 2022 to 3.1% from 3.5%. The growth outlook for the United States, the world’s largest economy, was slashed by OPEC in July to 1.8% this year from 3%, and to 1.7% in 2023 from 2.1%.

China, the second-largest economy in the world, is expected to grow by 4.5% this year, according to OPEC, down 60 basis points. The 2023 forecast for China was unchanged at 5.0%

A combination of the 40-year high inflation in the United States, war in Ukraine that fueled an energy crisis in Europe, and lingering pandemic woes in Asia intersected to fan recession fears and dim OPEC’s outlook.

“Downside risks remain, stemming from the ongoing geopolitical tensions, the continued pandemic, ongoing supply chain issues, rising inflation, high sovereign debt levels in many regions, and expected monetary tightening by central banks in the U.S., the UK, Japan and the Euro-zone,” OPEC researchers wrote in the organization’s monthly oil market assessment.

Still, the researchers emphasized, they continue to expect both economic and oil demand growth overall this year, with momentum continuing into 2023, albeit at a more moderate level than previously forecast. They said 2022 demand would average a “healthy” 3.1 million b/d above 2021 levels, putting consumption on par with pre-pandemic levels. OPEC noted “the recently observed trend of burning more crude in power generation.”

Gas-to-Oil Switching?

Meanwhile, the International Energy Agency (IEA) on Thursday lifted its 2022 global oil demand forecast by 380,000 b/d, yet it only expects growth of 2.1 million b/d.

The global energy watchdog pegged world oil demand at 99.7 million b/d in 2022 and 101.8 million b/d in 2023.

“Natural gas and electricity prices have soared to new records, incentivizing gas-to-oil switching in some countries,” the Paris-based agency said in its monthly oil report. “These extraordinary gains, overwhelmingly concentrated in the Middle East and Europe, mask relative weakness in other sectors.”  

IEA’s researchers noted ebbing use of travel fuels in developed countries, “aligning with more negative economic sentiment.”

IEA said world oil supply hit a post-pandemic high of 100.5 million b/d in July, following maintenance season and increases in output this year by both OPEC countries and the United States. If the world market can maintain the higher pace through the year – offsetting lower levels in the first half of 2022 — it could roughly align supply with expected demand yet this year.

OPEC and an allied group of oil-producing nations this month agreed to lift output by 100,000 b/d in September. That would bring the OPEC-plus total production target back to pre-pandemic levels after a long recovery from the depths of virus outbreaks in 2020. The group has embarked on more sizable increases over the summer months.

In the United States, production for the week ended Aug. 5 climbed by 100,000 b/d to 12.2 million b/d, marking a 2022 high, the U.S. Energy Information Administration (EIA) said Wednesday in its Weekly Petroleum Status Report.

U.S. demand over the last four-week period averaged 20.1 million b/d, down 2.4% from the same period last year, EIA reported. In the same span, gasoline consumption averaged 8.9 million b/d, down 6%.