Global oil demand remains resilient despite slowing economies and is likely to hold up even if recessions materialize, executives at some of the largest commodity trading houses said on Tuesday.
Oil consumption has surprised to the upside in recent months, and there hasn’t been significant demand destruction, as previously expected, economists and researchers at the top traders said at the Argus European Crude Conference in Geneva.
“All the different factors suggest, yes, we may be heading into a slowdown but it will be shorter and shallower than people are expecting,” Saad Rahim, Chief Economist for Trafigura, said at the conference, as carried by Reuters.
The latest data suggest that oil demand is still doing okay, according to Frederic Lasserre, Global Head of Research & Analysis at Gunvor Group.
“We were expecting some demand destruction, it did not really happen. Some countries had subsidies but still. We have been surprised,” Lasserre said at the event.
Both economists expect Brent Crude to trade above $75 per barrel at the end of 2023.
Last week, Trafigura’s Rahim said that slowing economies and interest rate hikes are set to keep investors and traders off risk assets such as crude oil, which could mean that oil prices may not exceed $100 per barrel again this year. Next year, oil prices could rebound to above $100 if China lifts Covid-related mobility restrictions and the Fed slows or pauses rate hikes to try to boost growth.
Looking beyond Q4 2022, however, the oil market is set for a supply crunch and oil price spikes, according to Rahim.
“We’re potentially moving from a world of commodity cycles to a world of commodity spikes because of the under-investment that has taken place in the last decade,” Rahim said at the APPEC conference in Singapore last week.
“My view is that people who were not investing at $100 to $120 a barrel this year aren’t going to be investing when it’s $70 to $90,” Rahim added.
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By Tsvetana Paraskova for Oilprice.com
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Under normal circumstances, one would expect recession to cause a shrinking of the global economy with oil demand destruction. But we are facing a new form of recession where global oil demand will continue to be robust and prices will continue to trend upwards while the global economy will shrink but without a demand destruction since there is nothing to destruct.
The reasons are a very tight global oil market, market shortages and a fast-shrinking global spare oil production capacity including OPEC+’s.
Professors of Economics should consider re-defining recession or adding the new form of recession to textbooks of economics.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert