War in Ukraine could seriously hurt global growth and oil demand, OPEC says

Russia’s invasion of Ukraine is likely to deal a severe blow to the global economy, which could weigh on oil demand, but the rapidly changing situation makes it difficult to assess the impact , the Organization of the Petroleum Exporting Countries said on Tuesday.

The cartel, in its monthly market report, refrained from revising its forecasts for global oil demand, supply and economic growth, saying the changing and uncertain situation in Ukraine had affected its ability to accurately predict the far-reaching consequences of the conflict on global energy markets.

Yet OPEC was unequivocal that the war’s impact on global economic growth would be painful and could have a ripple effect on oil demand.

OPEC said the conflict was driving up commodity prices, exacerbating already high global inflation; trade flows – which had just recovered from the supply chain bottlenecks caused by the Covid-19 pandemic – were becoming congested again; and developing countries are likely to feel the effects of food inflation. A drop in consumption was likely if the conflict and these negative effects continued, OPEC said.

“Challenges in the global economy, particularly with respect to slowing economic growth, rising inflation and ongoing geopolitical unrest, will impact oil demand in various regions,” the report said. .

In a rare move, however, OPEC said the situation in Ukraine was still too fluid for it to accurately associate numbers on the potential effects. He said his forecast for 2022 global oil demand growth, non-OPEC supply growth and global economic growth remained underestimated, at the same levels as last month.

In February, OPEC forecast demand to increase by 4.2 million barrels per day and projected non-OPEC supply growth of 600,000 barrels per day, year-over-year. He also said he expected global economic growth to come in at 4.2%.

“Given the complexity of the situation, the rapid developments and the fluidity of the market, with so far limited data to understand the profound consequences of this conflict, the projections change almost daily, which makes it difficult to determination of a single figure with a reasonable degree of certainty,” OPEC said.

Russia’s attack on Ukraine helped push the price of oil above $100 a barrel for the first time since 2014. Here’s how rising oil prices could further boost inflation in the American economy. Photo illustration: Todd Johnson

The move is the latest sign of how the war in Ukraine was making it difficult for commodity markets to function normally. Last week, the London Metal Exchange halted trading in nickel, a key metal used in car production and steelmaking, after prices doubled in hours.

The invasion led to a wave of Western sanctions against the Russian economy that threaten to deprive the world of Russia’s abundant energy supplies when oil markets were already tight and prices at multi-year highs. Russian supplies of nickel, aluminum and palladium are also at risk.

Russia is the world’s third-largest oil supplier, producing around 10 million barrels of crude a day, half of which is exported. The United States has said it will ban Russian oil imports altogether, while the United Kingdom has said it will phase out Russian oil supplies by the end of the year.

Even in countries without sanctions, many buyers have been reluctant to deal in Russian natural resources, fearing they will be ensnared by further restrictions or damage their reputations. Energy companies have announced their own boycott of Russian oil while tanker owners are forgoing skyrocketing freight rates for trips to and from Russian ports, fearing the risks.

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The price of a barrel of oil, which was already rising before the invasion, has since skyrocketed. Brent crude oil prices hit their highest closing level since 2008 last week on fears over Russian supplies.

In recent days, fears of a rise in Covid-19 cases and further lockdowns in China have dampened the oil rally. On Tuesday, Brent crude oil, the international benchmark, fell 6.5% to end at $99.91 a barrel, while West Texas Intermediate, the American benchmark, settled down 6.4% to $96.44.

Write to Will Horner at William.Horner@wsj.com

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Felix J. Dixon