OPEC says high prices to dampen pace of oil demand recovery

Slowdown in pace of recovery in fourth quarter of 2021 now assumed due to elevated energy prices

OPEC also cited slower-than-expected demand in China and India for the downward revision.

The Organization of the Petroleum Exporting Countries (OPEC) cut its world oil demand forecast for the last quarter of 2021 as high energy prices curb the recovery from Covid-19, delaying the timeline for a return to pre-pandemic levels of oil use until later in 2022.

In a monthly report, it also raised its supply forecast from US shale producers next year, a potential headwind to the efforts of the group and its allies, known as OPEC+, to balance the market.

OPEC said it expects oil demand to average 99.49m barrels per day (bpd) in the fourth quarter of 2021, down 330,000 bpd from last month's forecast. 

The year's demand growth forecast was trimmed by 160,000 bpd to 5.65m bpd.

"A slowdown in the pace of recovery in the fourth quarter of 2021 is now assumed due to elevated energy prices," OPEC said in the report. 

OPEC also cited slower-than-expected demand in China and India for the downward revision.

Oil has risen to a three-year high above $86 a barrel this year as OPEC+ only gradually ramps up supplies and demand rises, boosting pump prices to the highest in years in some markets. 

Natural gas, power, and coal prices have also soared.

Governments, companies and traders are closely monitoring the speed with which demand recovers. 

A slower pace could ease upward pressure on prices and bolster the view that the impact of the pandemic will curb demand for good.

OPEC now sees world consumption surpassing the 100m bpd mark in the third quarter of 2022, three months later than forecast last month. 

On an annual basis according to OPEC, the world last used over 100m bpd of oil in 2019.

The producer group stuck to its forecast that demand will rise by 4.15m bpd next year. 

This will take consumption to an average of 100.6m bpd, above the 2019 level.

Oil was little changed just below $83 a barrel after the report was released, up from an earlier decline.

Iraqi oil minister Ihsan Abdul Jabbar said OPEC+ is focused on ensuring a steady supply of crude to global markets and isn’t targeting a specific price.

The producer group aims to add all of the 400,000 barrels a day it has targeted for each month, and will review the pace of production hikes in the first quarter, the minister said at a press briefing in Baghdad.

Jabbar’s comments come amid concern that the OPEC countries and its allies are falling short of their pledged monthly increases, with several countries such as Angola and Nigeria struggling to meet targets. 

The volatile price of oil comes as investors weighed the odds that the US president Joe Biden will intervene to cool rising prices. 

He is facing growing pressure, including from his own party, as price gains in consumer costs hit the fastest pace in decades. 

His options include tapping the country's Strategic Petroleum Reserve or even banning oil exports.