OPEC sharply lowers oil demand growth forecast, but supply risks keep crude supported

OPEC has just issued a sizeable cut to its outlook for oil demand this year. The organisation's projection for demand growth now stands at only 400,000 bpd, a sharp fall from the 1.4 million bpd it had been expecting at the beginning of the year. That is a hefty adjustment, to say the least.

The move mirrors the way the oil market has developed over the course of the year, according to OPEC secretary general Haitham Al Ghais. The group is also still counting on some of that deferred demand to materialise in 2027. In other words, it expects consumption conditions to recover next year.

Even so, the more immediate picture is likely what matters most to oil traders. Even with demand expectations scaled back, prices are holding high: Brent is above $105, and WTI has returned above $92 on the day. Ongoing friction in the Middle East is the biggest factor, and it is keeping supply concerns alive.

The latest strikes against oil tankers near the Strait of Hormuz, along with the Houthi attack on Riyadh airport in Saudi Arabia over the weekend, are a reminder that tensions remain high. That leaves the oil market needing to be careful, since shipping-flow disruptions could get worse at any moment.

Lower oil demand is one problem; supply that is still struggling to reach its destination is quite another.

Until the Middle East situation improves in a material way, the revised OPEC outlook will be hard to use as a basis for a more bearish stance on prices. The demand outlook may indeed be cooling. For now, however, supply risks remain the dominant force.