OPEC on Tuesday stuck to its forecast for robust growth in world oil demand in 2022 despite the Omicron coronavirus variant and expected interest rate hikes, predicting the oil market would remain well supported through the year.
The upbeat view from the Organization of the Petroleum Exporting Countries comes as oil prices have reached the highest since 2014. Tight supply has given impetus to the rally, and OPEC’s report also showed the group undershot a pledged oil-output rise in December.
In a monthly report, OPEC said it expects world oil demand in 2022 to rise by 4.15 million barrels per day (bpd), unchanged from last month. Oil use will surpass the 100 million bpd mark in the third quarter, also in line with last month’s forecast.
“While the new Omicron variant may have an impact in the first half of 2022, which is dependent on any further lockdown measures and rising hospitalization levels impacting the workforce, projections for economic growth remain robust,” OPEC said in the report.
Interest rate rises, expected in 2022 to keep a lid on inflation and seen by some as risk to oil demand, are unlikely to dent the outlook, OPEC said. Expected U.S. rate hikes in the second quarter would coincide with the northern hemisphere driving season, which boosts fuel demand, it said.
“Monetary actions are not expected to hinder underlying global economic growth momentum, but rather serve to recalibrate otherwise overheating economies,” OPEC said.
“The oil market is expected to remain well-supported throughout 2022.”
This year’s demand rise will take oil use above pre-pandemic levels. On an annual basis according to OPEC, the world last used over 100 million bpd of oil in 2019.
Oil rose after the report was issued and was trading close to $88 a barrel, having hit $88.13 on Tuesday, the highest since October 2014.
The report also showed higher output from OPEC as the group and allies, known as OPEC+, gradually unwind record output cuts put in place last year.
OPEC+ has aimed to raise output by 400,000 bpd a month, with about 253,000 bpd of that due to come from the 10 OPEC members covered by the deal, but production has increased by less than that as some producers struggle to pump more.
The report showed OPEC output in December rose by 170,000 bpd to 27.88 million bpd, undershooting the rise OPEC was allowed. Libya and Nigeria both had a drop in output alongside gains in Saudi Arabia and elsewhere.
Traders are watching for signs of a big rebound in U.S. shale supply as higher prices prompt more investment, which could prove a headwind to OPEC+ efforts to support the market.
OPEC raised its forecast for growth in 2022 production of U.S. tight oil, another term for shale, to 670,000 bpd from 600,000 bpd. The growth forecast for overall non-OPEC supply in 2022 was left unchanged.
OPEC said it expects the world to need 28.9 million bpd from its members in 2022, unchanged from last month and theoretically allowing further increases in output.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.