OPEC Cuts Demand Growth Forecast

Key Insights

• OPEC reduced its demand growth forecast by 0.1 million bpd. 
• Coronavirus cases in China continue to rise.
• WTI oil declined below the $86 level. 

WTI Oil Moves Lower After OPEC Cuts Its Demand Forecast

Today, OPEC released its Monthly Oil Market Report, which indicated that the cartel revised its world oil demand growth forecast by 0.1 million bpd.

OPEC noted that “oil demand in 3Q22 and 4Q22 is revised lower due to the zero-COVID-19 policy in China, ongoing geopolitical uncertainties and weaker economic activities.”

OPEC has also stated that the situation with supply was not easy to forecast due to uncertainties regarding the potential for the U.S. shale production and the looming EU sanctions on imports of Russian oil.

G7 countries plan to impose a price cap on Russian oil by December 5. Just three weeks are left before the mechanism would be imposed, but the exact details of the scheme are not known.

The broad consensus is that Russian oil exports will decrease after December 5. However, expectations vary widely, and it remains to be seen whether the oil price cap will have an immediate impact on the oil markets.

In the near term, traders do not pay too much attention to the fate of Russian oil exports. Today, WTI oil gained strong downside momentum and moved below the $86 level. It looks that the market is worried that OPEC will reduce its quotas at the next meeting in December.

COVID Remains A Problem

While OPEC’s forecast played a role in today’s move in the oil markets, rising coronavirus cases in China are the main driver behind the sell-off.

China has recently adjusted its COVID policy, which was bullish for oil markets. However, traders worry that the country will change its mind if the number of new coronavirus cases continues to grow at a robust pace.

The pace of economic growth in China will be the key driver for oil markets in the upcoming months as developed economies are slipping into recession. China’s coronavirus policy has dealt a serious blow to the country’s economy. The potential reintroduction of all restrictions may put material pressure on oil markets.

For a look at all of today’s economic events, check out our economic calendar.