In a monthly report released on Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast that world oil demand would rise by 3.36 million barrels per day (bpd) in 2022, extending a recovery from 2020's slump.
The Ukraine war sent oil briefly above $139 a barrel in March, the highest since 2008, worsening inflationary pressures. COVID lockdowns in China, where a Beijing outbreak has prompted the resumption of mass testing, have curbed oil demand.
"Looking ahead, current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels," OPEC said in the report.
"Inflationary pressures are likely to persist and it remains highly uncertain as to when geopolitical issues may be resolved. Nevertheless, oil demand is forecast at healthy levels in the second half of this year."
The report expects world consumption to surpass the 100 million bpd mark in the third quarter, in line with earlier projections, and for the 2022 average to reach 100.29 million bpd, just above the pre-pandemic rate in 2019.
OPEC kept this year's global economic growth forecast at 3.5%, adding the downside "remains significant" and the upside potential "quite limited".
Oil extended an earlier gain after the report was released, trading further above $123.
OPEC and its allies, which include Russia, known as OPEC+, are ramping up output in monthly increments after record cuts put in place during the worst of the pandemic in 2020.
At its last meeting on June 2, OPEC+ brought forward oil production rises to offset Russian losses and smooth the way for a visit to Saudi Arabia by U.S. President Joe Biden.
Still, OPEC+ has been undershooting the increases due to underinvestment in oilfields by some OPEC members and, more recently, losses in Russian output as a result of sanctions and buyer avoidance.
OPEC's report showed that trend continued in May and said OPEC output fell by 176,000 bpd to 28.51 million bpd due to losses in Libya, Nigeria and other countries.
The growth forecast for non-OPEC supply in 2022 was reduced by 300,000 bpd to 2.1 million bpd. OPEC cut its forecast for Russian output by 250,000 bpd and left its U.S. output growth estimate steady.
OPEC expects supply of U.S. tight oil, another term for shale, to rise by 880,000 bpd in 2022, unchanged from last month, despite high prices that in previous years have encouraged growth.