Released January 20, 2022 | SUGAR LAND
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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Economists at the Organization of the Petroleum Exporting Countries (OPEC) left much of their forecasts for growth and demand unchanged from December, though that did little to arrest a steady increase in crude oil prices.
The price for Brent crude oil, the global benchmark, ended trading Tuesday at $87.51 per barrel, its highest close since October 2014. Supply-side issues stemming from trouble in Kazakhstan, Libya, Nigeria and a handful of other countries, coupled with the economic recovery from the pandemic, is pushing commodity prices to record highs.
Most of the narrative surrounding commodities has centered on the notion that the omicron variant is highly contagious, but not as life-threatening, as previous strains. That should bode well for demand, though OPEC economists left their forecasts unchanged from December, when the threat from omicron was just emerging and not as well understood.
Growth in global gross domestic product for 2022 is expected to be 4.2%, a decline from the anticipated growth rate of 5.5% for 2022. For the U.S., the world's leading economy, GDP growth for 2022 is forecast at 4%, a slowdown of about 1.5%.
In more immediate terms, the Federal Reserve Bank of Atlanta, in its GDPNow model, found that as of January 14, fourth-quarter GDP growth looked to be about 5%, down from the forecast of 6.8% growth from January 10.
From OPEC's point of view, that seems justification enough to keep demand forecasts static. World oil demand for 2022 is expected to grow by 4.2 million barrels per day (BBL/d) to 100.8 million BBL/d.
"While the impact of the omicron variant is projected to be mild and short-lived, uncertainties remain regarding new variants and renewed mobility restrictions, amid an otherwise steady global economic recovery," OPEC economists wrote.
That does not necessarily add up to an overwhelmingly bullish sentiment, and yet the price of crude oil is accelerating without abandon. So far this year, the price for Brent crude oil is up some 13% and the chorus of voices calling for $100 per barrel oil is getting louder.
One OPEC source told Reuters that "the price of oil may be close to $100, but it will certainly not be very stable."
A research note from Swiss financial services firm UBS is a bit more bearish, but saw a continuation of high prices for the foreseeable future. Analysts there said the geopolitical risk premium emanating from Ukraine, and more recently the UAE, along with stronger-than-expected demand, should keep crude oil prices at multi-year highs.
"We expect oil demand to reach new record highs and Brent to trade in the $80 to $90/BBL range for now," the note read.
But that sentiment is not universal. The solution to higher crude oil prices is usually higher crude oil prices, as producers start to chase market share when commodity prices become too high to resist. Higher prices not only serve as a deterrent to demand, but they incentivize producers to put more barrels on the market in an effort to capture the higher prices. Several members of OPEC are struggling to meet their production quotas, but some things like recent security issues in Libya and protests in Kazakhstan are temporary in nature.
Meanwhile, with consumer-level inflation in the U.S. well above the 2% target rate set by the Federal Reserve Board, it may only be a matter of time before the trend reverses.
"With these prices it's a risk to demand," another OPEC source told Reuters. "In my personal view, I am not in favor of $85+ for a long time. It is a bit high for sustained demand growth."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
The price for Brent crude oil, the global benchmark, ended trading Tuesday at $87.51 per barrel, its highest close since October 2014. Supply-side issues stemming from trouble in Kazakhstan, Libya, Nigeria and a handful of other countries, coupled with the economic recovery from the pandemic, is pushing commodity prices to record highs.
Most of the narrative surrounding commodities has centered on the notion that the omicron variant is highly contagious, but not as life-threatening, as previous strains. That should bode well for demand, though OPEC economists left their forecasts unchanged from December, when the threat from omicron was just emerging and not as well understood.
Growth in global gross domestic product for 2022 is expected to be 4.2%, a decline from the anticipated growth rate of 5.5% for 2022. For the U.S., the world's leading economy, GDP growth for 2022 is forecast at 4%, a slowdown of about 1.5%.
In more immediate terms, the Federal Reserve Bank of Atlanta, in its GDPNow model, found that as of January 14, fourth-quarter GDP growth looked to be about 5%, down from the forecast of 6.8% growth from January 10.
From OPEC's point of view, that seems justification enough to keep demand forecasts static. World oil demand for 2022 is expected to grow by 4.2 million barrels per day (BBL/d) to 100.8 million BBL/d.
"While the impact of the omicron variant is projected to be mild and short-lived, uncertainties remain regarding new variants and renewed mobility restrictions, amid an otherwise steady global economic recovery," OPEC economists wrote.
That does not necessarily add up to an overwhelmingly bullish sentiment, and yet the price of crude oil is accelerating without abandon. So far this year, the price for Brent crude oil is up some 13% and the chorus of voices calling for $100 per barrel oil is getting louder.
One OPEC source told Reuters that "the price of oil may be close to $100, but it will certainly not be very stable."
A research note from Swiss financial services firm UBS is a bit more bearish, but saw a continuation of high prices for the foreseeable future. Analysts there said the geopolitical risk premium emanating from Ukraine, and more recently the UAE, along with stronger-than-expected demand, should keep crude oil prices at multi-year highs.
"We expect oil demand to reach new record highs and Brent to trade in the $80 to $90/BBL range for now," the note read.
But that sentiment is not universal. The solution to higher crude oil prices is usually higher crude oil prices, as producers start to chase market share when commodity prices become too high to resist. Higher prices not only serve as a deterrent to demand, but they incentivize producers to put more barrels on the market in an effort to capture the higher prices. Several members of OPEC are struggling to meet their production quotas, but some things like recent security issues in Libya and protests in Kazakhstan are temporary in nature.
Meanwhile, with consumer-level inflation in the U.S. well above the 2% target rate set by the Federal Reserve Board, it may only be a matter of time before the trend reverses.
"With these prices it's a risk to demand," another OPEC source told Reuters. "In my personal view, I am not in favor of $85+ for a long time. It is a bit high for sustained demand growth."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
