OPEC predicts moderate economic growth for 2023
The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday credited the U.S. and European Union (EU) for better-than-expected economic growth in 2022 while cautioning that such progress may slow this year.
The growth dynamic in both the U.S. and the eurozone played a key role in lifting last year’s global economic growth estimate to 3 percent, the Vienna-based group stated in its monthly oil market report.
These positive trends, as well as economic support measures in China and “sound momentum” in India, should help maintain a “good growth level” in 2023, according to the report.
Nonetheless, the report predicted that growth would remain as anticipated at about 2.5 percent in 2023, as opposed to the 3 percent achieved in 2022.
“Although growth momentum is expected to carry over into 2023, the world economy will continue navigating through many challenges,” it said.
Challenges cited include high inflation, monetary tightening by major central banks and high sovereign debt levels in many regions.
“Moreover, geopolitical and COVID-19 related risks and uncertainties may add to the downside risk in a few selected economies,” the report said.
For the U.S., economic growth estimates for 2022 were revised from 1.7 percent last month up to 2 percent and from 0.8 percent up to 1 percent for 2023.
Eurozone economic growth estimates for 2022 rose from 3 percent to 3.2 percent and from 0.1 percent to 0.4 percent for 2023.
The Federal Reserve raised rates at the beginning of last year and continued to do so until the year’s end. That helped lead to an appreciation of the U.S. dollar and an increase in the price of oil.
Meanwhile, the rise in U.S. interest rates separately increased the cost of capital, decreasing the “appetite” of investors for oil, OPEC’s report said.
The U.S. is expected to be among the main drivers of non-OPEC liquid oil supply growth in 2023, along with Norway, Brazil, Canada, Kazakhstan and Guyana, according to the report. It projected declines in supply growth for both Russia and Mexico.
While Russia managed to weather external pressures on its economy at the beginning of its war in Ukraine, the OPEC report forecast “a continuation of the decline witnessed towards the end of 2022” in the coming year because of sanctions.
Sanctions includ an EU price cap on Russian oil and restrictions on the purchase, import or maritime transport of the resource — which will soon be expanded to include other refined petroleum products.
OPEC’s monthly report also took a deep dive into the economic growth potential as well as changes experienced by emerging market economies, such as India and China.
In India, such growth was revised from 6.5 to 6.8 percent for 2022 but remained at 5.6 percent for 2023.
China’s growth estimates remained unchanged at 3.1 percent for 2022 and 4.8 percent for 2023, despite Beijing’s recent decision to reopen the country, according to the report.
The Chinese economy experienced significant challenges in 2022 due to its COVID-19 policies and ongoing issues in the real estate and construction markets — which OPEC cited as reasons for a plunge in oil demand.
The relaxation of China’s zero-COVID-19 policies and other fiscal measures are expected to help bolster economic growth in 2023 and raise consumption.
Oil futures prices already recovered somewhat in the second half of December based on improving market sentiment surrounding China’s easing of restrictions, according to the report.
This turnaround has “raised optimism for a recovery in oil demand,” it said.
Nonetheless, the OPEC report remained cautious about China’s potential growth in the coming months, stressing that recent steps “could also have a negative impact.”
“A too-loose COVID-19 policy could lead to an overstretch of China’s health system, amid rising infections,” it stated. “Too much support for the property sector could again lead to an overheated and highly-indebted real-estate sector with the consequence of further insolvencies.”
Responding to the report’s projections, climate economist Gernot Wagner, of Columbia Business School, warned that “guesstimating oil demand is notoriously difficult.”
“Yes, China’s reopening should add to demand,” he told The Hill in an email. “But the Russian oil price cap seems to be working better than expected. Meanwhile, there’s the global recession guessing game.”
Morgan Bazilian, a public policy professor at the Colorado School of Mines, echoed these sentiments, stressing in an email that “projections are always wrong.”
“What happens in China this year on the demand side will make a big difference one way or the other,” said Bazilian, who previously served as an energy specialist at the World Bank.
Bazilian described OPEC — mostly Saudi Arabia — as “clearly in the driver’s seat on the global market as growth slows in the U.S.”
“The projections and prices do not seem to be moving the needle in the U.S. as much as one would expect based on history,” he added.
A broader lesson, according to Wagner, is the idea that oil will likely “stick around for a while,” despite moves from the EU, California and elsewhere to effectively ban internal combustion engines in 2035.
“The world is far from declaring anything close to success on transitioning away from oil,” Wagner said.
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