These 3 Things Will Take a Big Bite Out of Oil Demand in 2022

The ongoing war in Ukraine, Covid-19 lockdowns in China and surging commodity prices are going to take a significant bite out of global oil demand this year.

That’s according to Rystad Energy’s senior vice president of analysis Claudio Galimberti, who made the comment in a statement sent to Rigzone recently.

“Oil demand is set to shed 1.4 million barrels per day, dropping below the highs set in 2019, with a rebound unlikely until at least 2023,” Galimberti warned.

“Additional Covid-19-related lockdowns or geopolitical issues could lead to further GDP growth reductions, applying additional downward pressure to demand forecasts,” he added.

“The global economy is battling surging inflation, additional strict Covid-19 lockdowns in one of the world’s largest economies, and continuing supply chain disruptions, and the impact on oil demand will be significant,” Galimberti continued.

Rystad is now predicting that oil demand will average 99.6 million barrels per day this year, Galimberti highlighted. A pre-pandemic high of 100.2 million barrels per day was set in 2019, the VP outlined.

Tighter Lockdowns, Prolonged War

Galimberti noted that the risk of tighter lockdowns in China cannot be ruled out, although he added that road traffic activity in the country has stabilized lately.

“Market hawks will be closely monitoring Beijing’s decisions regarding lockdowns in the coming days as an indicator of additional oil demand impacts,” he said.

The Rystad VP also noted that a prolonged war between Russia and Ukraine may be accompanied by a significant increase in commodity prices, in particular oil and gas, especially if Europe decides to embargo Russian imports.

“The Russian war worst case for oil demand is premised on Brent prices reaching $180 per barrel in the fourth quarter, triggering a further economic slowdown and outright destruction of oil demand,” Galimberti said.

The Rystad VP highlighted that, in April, the IMF downgraded its 2022 world GDP growth forecast from 4.4 percent to 3.6 percent, citing the impact of global inflation, hawkish monetary policies in the U.S., lockdowns in China and supply chain disruptions worldwide.

“It also cited the war in Ukraine, sanctions against Russia and elevated commodity prices as the other key factors weighing on the global economy,” Galimberti said.

Demand Under 100MM Barrels Per Day in 2022

In a report sent to Rigzone last week, Standard Chartered forecasted that overall 2022 global oil demand will stay below 100 million barrels per day. The company projected that demand will increase from 97.5 million barrels per day in 2021 to 98.9 million barrels per day this year. 

The International Energy Agency (IEA) and Energy Information Administration (EIA) 2022 oil demand forecasts, which were highlighted in Standard Chartered’s report, also see overall global oil demand coming in below 100 million barrels per day this year.

The IEA expects this figure to rise from 97.5 million barrels per day in 2021 to 99.4 million barrels per day in 2022 and the EIA expects demand to increase from 97.4 million barrels per day in 2021 to 99.8 million barrels per day in 2022.

Conversely, the OPEC secretariat oil demand forecast predicts that demand will rise from 96.8 million barrels per day in 2021 to 100.5 million barrels per day this year, Standard Chartered’s report highlighted.

To contact the author, email andreas.exarheas@rigzone.com