By Geoffrey Smith
Investing.com -- The Organization of the Petroleum Exporting Countries cut its forecast for world oil demand this year, due to the effect of COVID-19 lockdowns in China and the war in eastern Europe.
In its monthly report for May, OPEC said it now expects global demand to grow by an average of only 3.4 million barrels a day this year, down from a prior estimate of 3.7 million b/d.
That masks a dramatic slowdown in growth between the first and the second quarters of this year. While first-quarter demand was up 5.2 million b/d, demand growth is expected to fall to 2.8 million b/d in the current quarter.
The bloc didn't single out China, but cited "COVID-19 pandemic restrictions" that have affected the country more than anywhere else in the world in the last couple of months. Internal travel demand has slumped, along with business activity, as the key port of Shanghai, the northeast region of Jilin, and latterly the cities of Beijing and Hangzhou have all been hit by lengthy lockdowns of varying severity. The Chinese government has signaled it won't abandon its "Zero-COVID" policy.
OPEC also said it expected demand to be hit by "ongoing geopolitical developments in Eastern Europe," a euphemism for the invasion of Ukraine by its partner, Russia. That has driven energy prices to record highs in both Europe and the U.S., leading to growing signs of demand destruction.
OPEC also revised down its estimate for Russian oil production this year by 360,000 barrels a day. Production in Russia fell sharply in April as the country struggled to find buyers to replace European, U.S., and Japanese customers.
However, it still sees only a modest risk of U.S. producers stepping up to fill that gap in the world oil supply. It left unchanged its forecast for U.S. output growth at an average of 1.29 million barrels a day.
U.S. crude futures were down 1.5% at $104.16 a barrel after the news, paring earlier losses. Brent crude was down 1.5% at $105.85.