This blog is the second in a series of nine blogs on commodity market developments, elaborating on themes discussed in the October 2021 edition of the World Bank’s Commodity Markets Outlook.
Oil prices continue to recover.
Oil prices have also been supported by higher natural gas prices, which increased oil demand for heating and electricity generation. Crude oil prices are expected to average $74/bbl in 2022, before declining to $65/bbl in 2023 as global production recovers.
Continued recovery in oil demand. The strongest recovery has been in China, where demand is currently more than 10 percent higher compared to its pre-pandemic level, while it remains slightly below for OECD and non-OECD countries excluding China.
Supply disruptions have supported prices. Production in the United States was affected by Hurricane Ida while OPEC and its partners (OPEC+) produced almost 1 million barrels per day (mb/d) below their quota due to maintenance and supply outages, especially for Angola, Kazakhstan, and Nigeria, according to data from the International Energy Agency.
Falling oil inventories.
Outlook. Global oil production is forecast to see a robust recovery of around 6 mb/d in 2022, as OPEC+ unwind their production cuts over the year, and output in the United States increases by about 1 mb/d.
Risks. In the short term, upside risks include greater use of crude oil as a substitute for natural gas, and the possibility that U.S. shale recovers slower than expected. To the downside, Further out, there is a risk that future supply growth will be weaker than demand, which could lead to sharply higher prices. Investment in new oil production has been relatively weak since the 2014 oil price collapse, and investment fell further in 2020, particularly among oil majors.
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