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OPEC predicts oil demand will ease in the coming months, helped by economic headwinds, while the US Energy Information Administration warns that winter heating bills are likely to rise.
The two closely watched fuel forecasts were released on Wednesday.
OPEC monthly oil market report issued a pessimistic note about global economic growth. And because economic growth is driving demand for oil, the group has cut its projections for global oil consumption growth by 500,000 barrels per day, or more than 15%.
Meanwhile, the EIA’s annual report winter fuel outlook — focused on natural gas, electricity, heating oil and propane in the United States — anticipated an increase in fuel consumption based on forecasts of a relatively cold winter.
OPEC sees the global economy slowing, for many reasons
OPEC still expects oil demand to rise in the fourth quarter, but not as much as expected.
The group expects oil demand for 2022 to reach just under 100 million barrels per day. That’s close to pre-pandemic levels, but OPEC had previously forecast the world to surpass that watermark this year.
Why slower growth? Make your choice. The group sees all sorts of uncertainties, including the risks of:
- Rising interest rates
- Geopolitical tensions
- A winter surge of the pandemic
- Unfilled jobs
- The supply chain grunts
- An energy crisis in Europe triggering a recession
These projections are also caught in the political trap.
OPEC and its allies, known as OPEC+, recently announced they would reduce production quotas by 2 million barrels per day. The announcement temporarily pushed up crude prices. The United States, which does not coordinate with OPEC on the amount of oil it produces, had pressured hard against the move, seeking to keep fuel prices low.
By releasing a report that projects less than expected demand, OPEC has reinforced its decision to reduce the supply of oil in the world.
Oil prices fell after the report was released.
Half of American households will spend 28% more this winter to heat their homes
Each fall, the EIA presents its forecast of how much Americans will pay to heat their homes over the coming winter.
This year the notes that energy prices are relatively high, largely due to Russia’s invasion of Ukraine. And the National Oceanic and Atmospheric Administration — the government’s weather tracker — predicts a colder winter than last year.
This means a double whammy, with households buying more fuel and paying more.
According to the forecast:
- Households that use natural gas for heating — about half of U.S. homes — will spend about $930 on average over the winter, up 28% from last year.
- Homes that use electricity – about 4 in 10 households – will pay an average of $1,360, up 10%.
- The 4% of households using heating oil should also expect significantly higher bills, up 27% to $2,350
- The 5% of households using propane will not see much of an increase; only $80 more, an increase of only 5%, which is less than the rate of inflation.
Europe is bracing for what could be a catastrophic winter if cold weather is met with a lack of fuel, and it has brought global attention to natural gas supply. US natural gas inventories (i.e. fuel currently stored) are relatively low at the moment, and the industry is shipping record amounts of liquefied natural gas to Europe.
However, the EIA is sounding no alarm over shortages in the United States, saying it expects “increased demand this winter to be more than offset by growth in natural gas production.” .
As a result, natural gas prices will start falling after January, he predicted.