Oil market may remain tight amid softening demand, weaker global economic activity and uncertainties: NBK

Oil market may remain tight even as oil demand softens amid weaker global economic activity and uncertainties, National Bank of Kuwait (NBK) has said in a report. Oil prices recovered in October, boosted by the Opec+ decision to cut production by 2mn barrels per day for 14 months effective November. Opec+’s announcement has helped put a floor on prices and, in tandem with expected supply shortfalls and moderate supply gains from Russia and non-Opec countries including the US, respectively, the market should remain tight even as oil demand softens amid weaker global economic activity, it said.International benchmark Brent crude ended the month trading at $94.8/barrel, posting a first monthly gain, of 7.8% month-on-month, in five months. US crude marker West Texas Intermediate closed the month up almost 9% at $86.5.October’s oil price recovery occurred despite concerns about the health of the global economy amid aggressive central bank monetary tightening, surging consumer prices, the destabilising conflict in Ukraine and relatively weak Chinese economic activity, NBK said. The latter has been aggravated by repeated Covid-19 mobility restrictions and a property sector downturn. The International Monetary Fund‘s (IMF) October World Economic Outlook forecast that world GDP growth would slow from 3.2% this year to a downwardly revised 2.7% in 2023. There is a 25% chance that year-ahead growth could drop below 2%.“The outlook for the oil market is mired in uncertainty,” NBK said and noted while oil demand is softening in line with weakening global economic growth, it is the supply side that has the greatest potential to spring surprises. The impending EU oil embargo on Russian seaborne crude and refined products could lead to the shutting-in of substantial volumes of Russian supply — even after barrels are diverted at a heavy discount to Russia’s largest customers China, India and Turkiye. In tandem with Opec+ supply cuts, the market is expected to tighten in 2023, with stock draws expected from mid-2023 onwards. The IEA sees the ‘call on Opec’ in 2023 higher than the group’s likely production during the year, especially in the absence of higher Iranian or Venezuelan supply. “We expect risks to oil prices to be on the upside,” NBK added.