By Adedapo Adesanya
Oil prices rose on Friday, with Brent crude jumping 3.42 per cent or $3.67 to sell at $111.10 per barrel and the West Texas Intermediate (WTI) increasing by $3.96 or 3.73 per cent to $110.10 per barrel.
The positive movement ignored fears about a fall in demand this year as revealed by the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).
Falling demand joined the bearish factors gripping oil markets, with several reports (most notably from the IEA and OPEC) slashing 2022 demand forecasts as souring inflation and supply chain disruptions take their toll.
However, the market chose to focus on concerns that a possible ban on Russian oil by the European Union (EU) could tighten supplies.
Analysts pointed out that an EU embargo, if fully enacted, could take about 3 million barrels per day of Russian oil offline, which will disrupt global trade flows, triggering market panic and extreme price volatility.
In a monthly report, OPEC said world demand would rise by 3.36 million barrels per day in 2022, down 310,000 barrels per day from its previous forecast.
OPEC has cited suggestions that China, with strict COVID lockdowns, is facing its biggest demand shock since 2020 when oil use plunged.
“Demand in 2022 is expected to be impacted by ongoing geopolitical developments in Eastern Europe, as well as COVID-19 pandemic restrictions,” OPEC said in the report.
Nevertheless, OPEC still expects world consumption to surpass the 100 million barrels per day mark in the third quarter, and for the 2022 annual average to just exceed the pre-pandemic 2019 rate.
In the same vein, the IEA lowered its forecast for oil demand this year by 100,000 barrels per day and expects oil demand to increase by 1.8 million barrels per day in 2022 on average to 99.4 million barrels per day, according to the May report of the organization, due to souring pump prices, slowing economic growth and the spread of COVID-19.
High prices and slowing economic growth will weigh on demand in the fourth quarter, according to the IEA. It also warned that this could be exacerbated by lengthy pandemic lockdowns in China and growing international restrictions on Russia.
Also pressing oil prices during the week, inflation and rate rises drove the US Dollar to a near 20-year high against a basket of currencies, making oil more expensive when purchased in other currencies.