Slashed oil demand forecast, warnings of global recession weigh on Brent
Front-month ICE Brent has decreased by $2.02/bbl on the day from Friday, to $91.87/bbl at 09.00 GMT.
PHOTO: Crude oil has declined 2% on the day from Friday after the International Energy Agency and OPEC slashed their demand forecasts amid rising concerns about an impending recession. Getty Images
Upward pressure:
Key OPEC figures are doubling down on the notion that OPEC+ output quota cuts are needed, notwithstanding a broadside from the US and some disunity in OPEC ranks.
White House National Security Council spokesperson John Kirby had stated that "more than one" OPEC member disagreed with Saudi Arabia's push to cut OPEC+ oil production quotas last month, and that they felt coerced into voting for it.
OPEC+ agreement to cut oil production quotas by 2 million b/d from November, compared to August levels.
Following the White House comments, OPEC secretary general Haitham al-Ghais defended OPEC+'s output cuts by calling them "pre-emptive measures” to maintain price stability. The secretary general of the Organization of Arab Petroleum Exporting Countries (OAPEC), Ali bin Sabt, has called the agreement “correct” and “taken at the right time.”
Bahrain, UAE, Iraq, Oman, and Kuwait have stated that the "purely technical decision" to ensure oil market stability was unanimously approved without any political motives, echoing Saudi Arabia's energy minister's earlier statement that the "unanimous" cut was a result of economic factors.
Downward pressure:
Experts are warning that another aggressive Federal Reserve interest rate hike next month could trigger a global recession. The UN has warned that a global recession is "almost certainly coming" and the "Fed is to blame". EU foreign policy chief Josep Borell has said that the Federal Reserve is pushing central banks to raise rates worldwide, potentially tipping the world into a recession.
The oil demand outlook for China looks uncertain. Chinese President Xi Jinping indicated at a Communist Party congress in Beijing that his zero-Covid strategy will not be loosened immediately.
As people are protesting in Beijing with demands to ease Covid-19 restrictions, Sun Yeli, the spokesperson for the 20th National Congress of the Communist Party of China, has called the government's zero-Covid policy "science-based” and a “part and parcel” of China’s epidemic response efforts.
The International Energy Agency (IEA) has slashed its forecast for global oil demand growth for 2022 and 2023 and warned that higher oil prices may trigger a recession.
In the current fourth quarter, the IEA expects economic headwinds to hold back demand growth by 340,000 b/d more than previously expected, now pegging it at 1.9 million b/d. Its downward revision for next year is even greater, with 470,000 b/d less than previously expected, at 1.7 million b/d.
The IEA has also estimated that underproduction among OPEC+ led by Russia means will probably translate to a 1 million b/d cut, instead of the combined 2 million b/d.
By Konica Bhatt
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