Crude oil demand to remain unfazed by stronger US dollar – OPEC
MADRID (ICIS)–OPEC is confident a stronger US dollar resulting from interest rates hikes will not dent dollar-denominated crude demand as the global economy recovers from the pandemic, the crude producing cartel said on Tuesday.
To contain rocketing inflation, the US’ central bank, the Federal Reserve (Fed), may increase interest rates for borrowing this year, which would in turn increase the value of the dollar.
Most of the world’s crude oil trading is done in that currency, so importing countries would find their spending in the commodity rising, putting pressure on corporate and household finances.
But OPEC said that, because the interest rates hikes are likely to be implemented in the second quarter, they would coincide with the run-up to the northern hemisphere’s driving season.
That is why the crude cartel expects that any crude demand decrease due to a higher US dollar is to be offset by an increase in demand associated with the driving season.
Earlier on Tuesday, crude oil prices reached a seven-year high in European afternoon trading after Yemen-based Houthi rebels carried a drone attack against key Middle East producer the UAE.
“Historically, a strong dollar would cause non-US-dollar denominated net-importing economies to require more of their local currency to import crude oil. However, in the past, a gradually strengthening US dollar had a limiting effect on oil price,” said OPEC in its monthly report.
“In summary, monetary actions are not expected to hinder underlying global economic growth momentum, but rather serve to recalibrate otherwise overheating economies.”
DEMAND IN 2022 TO REACH PRE-PANDEMIC
OPEC confirmed in January’s crude oil report its forecasts for global demand in 2022, when it would surpass pre-pandemic levels.
Demand in 2022 is expected to stand at 100.8m bbl/day, an increase of 4.2m bbl/day compared with 2021.
In the groups of the most industrialised nations OECD, oil demand is forecast to grow in 2022 by 1.8m bbl/day, compared with 2021.
In non-OECD countries, oil demand is projected to increase by 2.3m bbl/day.
“While the impact of the Omicron variant is projected to be mild and short-lived, uncertainties remain regarding new variants and renewed mobility restrictions, amid an otherwise steady global economic recovery,” said OPEC.
Some of those uncertainties may come, said OPEC, from continuing supply chain bottlenecks and ongoing trade disputes, which could impact industrial and transportation fuel requirements.
“In terms of fuels, light distillates, mainly for the petrochemical industry, are expected to continue to drive oil demand, while gasoline and diesel, particularly for road transportation, are forecast to continue to recover and reach pre-pandemic levels during the year,” it said.
“With regard to jet fuel, while the private travel sector has seen some considerable gains, business travel continues to lag and may not see a full recovery in 2022.”