The Ukraine crisis threatens to deepen rising inflation, which in turn hurts oil demand and investment, the Organization of the Petroleum Exporting Countries (OPEC) said, Bloomberg reported.
Global crude oil prices hit a 13-year high of $139 a barrel last week as Western sanctions on Russian supplies tightened the already-strained oil market.
Although Brent futures are now down around 30%, concerns remain over the risk of a long-term loss of oil exports from Russia, which is part of the OPEC+ group.
In its monthly bulletin, OPEC said: “This conflict has so far created a number of issues, including rising commodity prices, which are further escalating global inflation.
“The effects of the conflict, and particularly the effects of rising inflation, if sustained, will result in consumption and investment contracting to varying degrees.”
A month ago, OPEC raised the likelihood of stronger demand growth in 2022. She now believes that Russia’s invasion of Ukraine and concerns about Covid-19 would result in a near-term negative impact on growth.
Referring to the global economy, OPEC further stated: “Looking ahead, challenges to the global economy – particularly in terms of slowing economic growth, rising inflation and ongoing geopolitical turmoil – will affect oil demand in various regions.
“While the year started on a relatively solid footing, recent events in Eastern Europe could derail the recovery.”
Saudi Arabia, the largest global oil producer, has so far refused to give in to US pressure to increase production to fill the gap left by Russia, in part due to its reluctance to publicize its political interests towards Russia hurt, and partly on the belief that despite the turmoil in Eastern Europe, the oil markets are adequately supplied.
In its latest report, OPEC predicts that global oil consumption is expected to exceed 100 million barrels per day in Q3. That number is in line with OPEC’s forecast from last month, Reuters reported.
OPEC had raised its forecast for total oil consumption for the year by about 100,000 barrels per day to 100.90 million barrels per day.
The report also pointed to higher OPEC+ production to gradually unlock record production cuts in place since 2020.
OPEC+ intended to increase production by 400,000 bpd per month, with about 254,000 bpd of that coming from ten OPEC members. However, production has grown less as some countries struggle to produce more.
February production showed an increase of 440,000 barrels per day to 28.47 million barrels per day on higher supply from Saudi Arabia and recovery from defaults in Libya.
The oil producer group expects the world would need 29 million bpd this year, up 100,000 bpd from last month.
Now the oil alliance from 23 countries wants to meet on March 31st.