DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange declined Thursday after the International Monetary Fund forecasted global economic growth is likely to decelerate sharply this year, with advanced economies expected to see an especially pronounced slowdown, weighing on the demand outlook for OECD fuel consumption.

In its World Economic Outlook, IMF said global economic growth will fall from 3.4% in 2022 to 2.8% this year before settling at 3% for the next five years -- the lowest median growth in decades.

"Risks to the outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply," said IMF. "Advanced economies in North America and European Union will likely to suffer the sharpest slowdown from 2.7% in 2022 to 1.3% this year, reflecting tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions and growing geoeconomic fragmentation."

Looking into details of the report, Germany and the United Kingdon are expected to post the lowest growth among advanced economies at a negative 0.1% and 0.3%, respectively. For the United States, the economy is expected to expand by 1.6% this year before slowing to 1.1% in 2024.

In contrast, emerging markets and developing economies will perform comparatively better this year, growing at an annualized rate of 3.9% and 4.2% in 2024. China and India both expected to record above 5% growth this year. However, IMF Head Kristalina Georgieva noted, "Fragmentation of the global economy into rival trading blocs runs the risk of prompting a new cold war."

This development would eventually affect the flow of Foreign Direct Investments into the developing countries.

Despite those headwinds, Organization of the Petroleum Exporting Countries left its global demand projections largely unchanged at 2.3 million barrels per day (bpd), with only minor downward adjustments made to the OECD region, which have been offset by stronger-than-expected demand seen in non-OECD countries in January and February. Oil demand in the OECD is forecast to increase a modest 100,000 bpd this year, while non-OECD demand is forecast to grow by 2.2 million bpd.

OPEC left its global economic growth forecast unchanged at 2.6%.

On the supply side, OPEC estimates that oil production from the 13-member cartel declined by about 280,000 bpd during the first quarter, led by output losses in Angola, Iraq, and Nigeria.

In March, OPEC's total oil production dropped by an additional 86,000 bpd month-over-month to average 28.9 million bpd, according to secondary sources cited in the report.

The decline was realized before OPEC announced a 1.2 million bpd production cut effective from May until the end of the year. It's worth noting that the U.S. Energy Information Administration pegged the actual decline in OPEC's targets this year well below the promised cut due to underproduction in the prior months.

"In March, OPEC produced less than its previous targets, and in our March STEO, we had assumed that OPEC production would fall further below the prior production targets in the coming month. Because we had already accounted for some of the reduction in OPEC's crude oil, we have reduced our forecast for OPEC's crude oil production from second to fourth quarter 2023 around 500,000 bpd," said EIA in its monthly report.

EIA now expects OPEC oil production to fall by 400,000 bpd this year compared to their 2022 output rate.

For countries outside OPEC, the cartel forecasts production would grow by 1.4 million bpd year-on-year to average 67.2 million bpd, broadly unchanged from last month.

U.S. oil production is expected to recover gradually after the considerable drop in December 2022. However, the supply growth forecast for 2023 was revised down slightly to an average of 1 million bpd, citing lower-than-expected drilling and completion activities in the first quarter.

At settlement, West Texas Intermediate futures for May delivery declined $1.10 to $82.16 barrel (bbl). The international crude benchmark Brent for June delivery fell to $86.09 bbl, down $1.24. NYMEX May RBOB futures dropped back $0.0410 to $2.8317 gallon, and the May ULSD contract declined to $2.6728 gallon, down $0.0303.

Liubov Georges can be reached at liubov.georges@dtn.com