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The Ukraine crisis threatens to deepen the rising inflation, in turn hurting oil demand and investment, stated the Organization of Petroleum Exporting Countries (OPEC), reported Bloomberg.
Global crude prices reached a 13-year high at $139 a barrel last week, as Western sanctions on Russian supplies led to a shortfall in the already tight oil market.
Although Brent futures have now dropped by approximately 30%, fears continue to linger over the risk of a long-term loss of oil exports from Russia, which is part of the OPEC+ group.
In its monthly report, OPEC said: “This conflict has so far led to a number of issues, including rising commodity prices, which are further escalating global inflation.
“The effects of the conflict and especially the impact of rising inflation, if sustained, will lead to a decline in consumption and investments to varying degrees.”
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A month ago, OPEC had raised the probability of a more increased demand in 2022. It now believes that Russia’s incursion on Ukraine, and concerns relating to Covid-19, would lead to a short-term negative impact on growth.
Commenting on the global economy, OPEC further stated: “Looking ahead, challenges to the global economy, especially regarding the slowdown of economic growth, rising inflation, and the ongoing geopolitical turmoil, will impact oil demand in various regions.
“While the year started on relatively solid underlying footing, the latest events in Eastern Europe may derail the recovery.”
Saudi Arabia, the major global oil producer, has so far refused to yield to US pressure to increase production to fill the gap left by Russia, partly stemming from its reluctance to harm its political interest with Russia, and partly due to a belief that oil markets are sufficiently supplied, in spite of the turmoil in Eastern Europe.
In its latest report, OPEC forecasts that global oil consumption is expected to cross 100 million barrels per day (bpd) in Q3. This figure is in line with OPEC’s last month forecast, reported Reuters.
OPEC had increased its forecast of the year’s total oil consumption by nearly 100,000 bpd, to 100.90 million bpd.
The report also indicated that higher production from OPEC+, to gradually unlock record output cuts, has been in place since 2020.
OPEC+ intended to increase production by 400,000 bpd a month, with approximately 254,000 bpd of that coming from ten OPEC members. Despite this, production has been growing by less than this, as some countries are struggling to produce more.
The February production rates showed an increase of 440,000 bpd, to 28.47 million bpd, due to a higher supply from Saudi Arabia, and recovery from outages in Libya.
The oil producers group expects the world would require 29 million bpd this year, up by 100,000 bpd from last month.
The 23-country oil alliance now plan to meet on 31 March.