BAKU, Azerbaijan, May 21. High oil prices can lead to a sharp decline in global demand, Trend reports via Commodity Markets Outlook from the World Bank (WB).
However, as the WB thinks, since the price flexibility of oil demand in the short term is very low, and many governments have reduced fuel taxes and introduced subsidies to mitigate the effect of price increases, at current prices, this seems unlikely.
“If oil prices were to rise markedly higher there could be increasing demand destruction. In addition, global growth could fall more than currently expected, with the potential risk of a recession, while the spread of COVID-19 could worsen, with the impact depending on the severity of lockdown measures. Both risks would hit global oil demand,” the WB report noted.
Meanwhile, global crude oil consumption has fallen since the beginning of the year due to a combination of slowing economic growth, COVID-19 outbreaks in China, and the impact of higher oil prices on consumption.
After having regained pre-pandemic levels in the fourth quarter of 2021, oil demand went down by 2 percent in the first quarter of 2022 and is expected to decline further in the second quarter of 2022.
According to the April outlook from the International Energy Agency (IEA), global oil consumption is expected to increase by 2 million barrels per day to 99.4 million barrels per day in total 2022, slightly below the 2019 level, the report added.
Global GDP growth is expected to slow sharply in 2022 and 2023, which will put pressure on oil demand, while the side effects of the conflict between Russia and Ukraine will aggravate several pre-existing obstacles, including the exhaustion of pent-up demand, the withdrawal of political support and higher commodity prices, the WB concluded.
Meanwhile, The price of Brent oil is forecast to average $100 per barrel in 2022, which is an increase of 42 percent, compared to 2021, which is also the highest annual average since 2013. According to the WB outlook, Brent oil prices are expected to decline to $92 per barrel in 2023. However, this is still above an average of $60 per barrel in 2016-2021.
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