Japanese Yen Q3 2022 Forecast: Will a Weak Yen Push the BoJ into Action?

Japanese Yen Q3 2022 Forecast: Will a Weak Yen Push the BoJ into Action?

The Japanese Yen was hammered by markets in the second quarter. USD/JPY shot by the 2002 peak, touching its highest since 1998. A key driver of the Yen’s weakness has been the Bank of Japan’s policy divergence from its major peers. While central banks like the Fed and RBA gave surprise hikes, the BoJ remained persistently dovish, making life difficult for its currency. On the chart below, USD/JPY can be seen rising as US Treasury yields outpaced their Japanese equivalent. Could this change ahead?

Japanese Yen Fundamental Drivers

Japanese Yen Q3 2022 Forecast: Will a Weak Yen Push the BoJ into Action?

Chart Created Using TradingView

Rising Inflationary Forces

A key reason why the BoJ reaffirmed its ultra-loose policy is low Japanese inflation. This has been slowly changing. Local CPI was 2.5% y/y in May, above the central bank’s 2% target. The BoJ has historically struggled to bring inflation in target. Some of this is likely due to reasons outside of its control, such as demographics. But even Japan is starting to feel the pinch of rising prices. The island-nation economy is the world’s 4th largest consumer of oil, which has become more expensive.

In the second-quarter Yen outlook, I tried to predict Japanese inflation based on crude oil and coal, also factoring in time. By removing the lag from CPI data, I could use recent energy price data to estimate where Japanese inflation could go in the coming months. The approach correctly estimated inflation breaching the Bank of Japan’s 2% target in Q2. In this article, I revisited the original multiple linear regression model and simplified it by taking out the impact of coal. I then built a second model that tries to consider the Yen’s devaluation. But more on the latter shortly.

The first model below has an R-squared score of 41%. In other words, only 41% of the variation in Japanese CPI is explained by crude oil and time. More to the point, it greatly underestimated the actual CPI in May (0.97% y/y expected versus 2.5% printed).

Estimating Japanese CPI – Model 1

Japanese Yen Q3 2022 Forecast: Will a Weak Yen Push the BoJ into Action?

Source: Bloomberg, Chart Prepared by Daniel Dubrovsky

Will a Weak Yen Translate into BoJ Action?

The second model below tries to predict Japanese CPI by also factoring in the Japanese Yen and holding constant G20 CPI. This is to see if a devalued currency could be an inflationary force for the island-nation economy. This model has a higher R-squared at 60%, meaning that 60% of the variation in Japanese CPI is explained by the variables. The higher accuracy of the model suggests the Yen could be a key factor in driving inflation. Without the Yen, the accuracy drops to 53%.

This model still underestimated actual CPI in May (1.8% seen versus 2.5% printed). It does see a slowdown in early Q3 before inflation rises back to target. It will remain to be seen if the BoJ will spring into action. A general rule of thumb for traders is to not fight central banks. As such, a dovish BoJ should still work against the Yen. But, a combination of inflation near target and rising concerns about JPY’s level could perhaps help stabilize the currency in the months ahead.

Estimating Japanese CPI – Model 2

Japanese Yen Q3 2022 Forecast: Will a Weak Yen Push the BoJ into Action?

Source: Bloomberg, Chart Prepared by Daniel Dubrovsky

Here is what could send the price of oil to $380 / barrel – JP Morgan on Russia revenge

Here is what could send the price of oil to $380 / barrel – JP Morgan on Russia revenge

JP Morgan analysts outline potential retaliation by Russia if the G7 manage to put together a mechanism to cap the price of Russian oil:

  • “The most obvious and likely risk with a price cap is that Russia might
    choose not to participate and instead retaliate by reducing exports.”
  • “It is likely that the government could retaliate by
    cutting output as a way to inflict pain on the West. The tightness of
    the global oil market is on Russia’s side.”

Price impact:

  • A 3 million-barrel output cut to daily supplies would push benchmark London
    crude prices to $190
  • Worst-case scenario of 5 million could
    mean “stratospheric” $380 crude

Info comes via Bloomberg (gated)

In the wake of the SPR release, from the US and some Asian countries

EUR/CAD – Stick to Trading a Solid Range: Top Trading Opportunities

EUR/CAD – Stick to Trading a Solid Range: Top Trading Opportunities

‘When life gives you lemons, make lemonade’

A lot of traders look for breakouts and sharp moves to boost their P&L, and in a lot of cases make a great success of this. However, trading defined ranges can potentially offer more than one opportunity when looking at different assets, and when you have strong levels of support and resistance your chances of trading profitably can actually increase as you may have the opportunity to both buy and sell your asset as it touches both support and resistance. When range trading you are also aware of when not to trade, especially if price action is gathered around the center of the range. Sometimes when there is unexpected news on an asset class, traders may jump on the trade, but if this asset is in the middle of a trading range it may be prudent to see if either support or resistance is tested before making a trading decision.

EUR/CAD Daily Price Chart

EUR/CAD – Stick to Trading a Solid Range: Top Trading Opportunities

Chart via ProReal Time

One pair that looks as if it has set a solid trading range over the last two-and-a-half months is EUR/CAD. Both support and resistance have been tested and held on multiple occasions since the range formed with reactions from these levels also being reasonably quick. Both support and resistance levels can be used by traders to help set invalidation levels with the four-point trading range allowing a slightly more flexible approach when setting stop losses. Both the Canadian dollar and the Euro are likely to be volatile over the coming months as both sides look to re-set monetary policy to fight off inflation and this may provide further opportunities to test the current range.

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

At one point last quarter the U.S. stock market was off by about 25%, with all losses coming in the first half of the year. Stocks became oversold with sentiment nose-diving, and on that it appears we are in for a bit of a recovery. However, all that is expected is just that – a recovery rally amidst a broad bear market.

S&P 500

The rally could be sharp and bring back a fair amount of optimism before all is said and done. It will be key for S&P 500 futures to hold onto the recent lows at 3639, and if broken it will need to be a short-lived event, if the recovery outlook is to maintain.

On the top-side, a rally could develop towards 4200, but not likely to exceed it by much given the bigger picture bear market outlook. Countertrend moves can be tricky when trying to play momentum, so taking a pullback approach (buy-the-dip) may be the most prudent way to participate.

S&P 500 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

DAX 40

At one point last quarter the German benchmark was holding up much better than its US counterpart, but that outlook quickly changed towards the end of the last leg lower. The DAX is likely to recover, but it could be a bit more sluggish than the US index.

Watch support via the trend-line off the March 2020 low. A firm breakdown below 12965 could have the earlier-year low in play. On the top-side, watch the trend-line off the January peak, and after that resistance clocks in from just over 14700 up to 14925.

DAX 40 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

Nikkei 225

The Nikkei is also looking like it could be on path to a sluggish move higher despite having generally been stronger than the US market. A bounce could have the 200-day at 27754 (& declining) and trend-line off the 2021 high in play as strong, confluent resistance. This could be a spot to look for the Nikkei to roll over. On the downside the March 2020 trend-line is in the area as support, followed by the yearly low at 24681.

Nikkei 225 Weekly Chart

Equities Q3 2022 Technical Forecast: Rebound then Lower Again

Chart created with TradingView

AUD/JPY Forecast – Bullish on Monetary Policy Disparity: Top Trading Opportunities

AUD/JPY Forecast – Bullish on Monetary Policy Disparity: Top Trading Opportunities

AUD/JPY made a 7-year high in early June at 96.88 then pulled back to the just under 92.00 before settling back into a range. Broad Yen weakness has been seen across the board with USD/JPY hitting a 24-year peak recently.

The monetary policy of Japan’s Ministry of Finance (MoF), and by extension the Bank of Japan (BoJ), is going the opposite direction of other global central banks, with the exception of the People’s Bank of China. The BoJ recently committed to extending their yield curve control program (YCC) and are close to holding 50% of all Japanese government bonds (JGBs) on issue.

The RBA on other hand has recently committed to a more aggressive tightening path for monetary policy than previously anticipated by the market. It hiked by more than the consensus for the May and June meetings and there is little to say that this won’t happen again.

Second quarter Australian CPI will be released 27th July. It was first quarter CPI coming in at 5.1% year-on-year that prompted the RBA to lift rates. First quarter CPI was 2.1% quarter-on-quarter. The 2021 Q2 CPI was 0.8% and this will be dropping off the annual number this time around.

Observing the energy and agricultural markets over the second quarter, it is shaping up to be a print larger than 0.8%. The surge in futures prices of these commodities occurred at the end of March when Russia invaded Ukraine.

The flow through effect into the real economy was only felt after a month or so after those dramatic price rises. Certainly, anyone living in Australia would have been shocked in the supermarket and at the petrol bowser through the second quarter.

This is the period that the Australian Bureau of Statistics (ABS) will be measuring consumer price changes. The market may not be fully cognizant of the probability that the July CPI print could be much larger than the RBA would like.

RBA Governor Philip Lowe has made it clear that the bank is ready to act decisively if warranted. A jumbo hike in August, on top of the rises in May, June and July, should not be ruled out.

The Australian fundamental backdrop remains strong with low unemployment, solid growth, positive international trade and debt at relatively tame levels, publicly and privately. The market is not focused on that for now, monetary policy appears to be in the driver’s seat. The aggressive hawkish stance from the Federal Reserve has seen the US Dollar rally and AUD/USD has been pummeled in the melee.

AUD/JPY on the other hand, could have some favorable tailwinds about to pick up.

Buy near 93.25, stop loss at 91.25 and take profit at 96.45. Additionally, if Japan changes monetary policy or actively intervenes in the FX market, exit the trade. Developments in China should also be monitored for macro implications and could also trigger an exit from the trade.

AUD/JPY Chart

AUD/JPY Forecast - Bullish on Monetary Policy Disparity: Top Trading Opportunities

Source: TradingView

Gold Q3 2022 Forecast: Fundamental Outlook Weakens

Gold Q3 2022 Forecast: Fundamental Outlook Weakens

As anticipated in the Q2’22 gold forecast, the main catalyst that drove gold prices higher in Q1’22 – the Russian invasion of Ukraine – proved to be a short-lived catalyst. The conflict has been largely contained, insofar as the European Union, the United States, and NATO have not been drawn in. The net-result: gold prices erased all their gains from Q1’22 in Q2’22, and now are effectively unchanged year-to-date.

Our longstanding rationale remains valid and was brought back into focus as Q2’22 progressed: central banks, including the Federal Reserve, have begun to winddown pandemic-era stimulus efforts, with rate hike cycles just getting started. Inflation expectations remain relatively stable, and amid rising nominal yields, real yields have risen sharply in recent months.

The challenge for gold prices in Q3’22 persists barring further escalation in the conflict between Russia and Ukraine, drawing in the EU, the US, and NATO into a widespread conflict, there are few bullish catalysts on the horizon. The macro fundamental environment should prove increasingly difficult for gold prices as Q3’22 progresses, particularly now that all major central banks – save the Bank of Japan – have wound down their stimulus efforts.

US Real Yields a Headwind, Still

We’ve been a bit of a broken record for the past few quarters, but that’s because the obstacles in front of gold prices have not changed in a material fashion. Central banks acting more aggressively to arrest persistently higher realized inflation in the short-term are pushing up sovereign bond yields across the curve. Longer-term inflation expectations have not risen significantly, sending higher real yields.

Gold, like other precious metals, does not have a dividend, yield, or coupon, thus rising sovereign real yields – particularly US real yields – remain problematic. Put another way, when other assets are offering better risk-adjusted returns, or more importantly, offering tangible cash flows during a time when inflation pressures are raging, then assets that don’t yield significant returns often fall out of favor. Gold behaves, in effect, like a long duration asset (as measured by modified duration, not Macaulay duration); a zero-coupon bond.

Gold Futures vs. US Treasury Nominal, Real Yields and US Break-evens: Daily Timeframe (June 2017 to June 2022) (Chart 1)

Gold Q3 2022 Forecast: Fundamental Outlook Weakens

Source: Bloomberg

The circumstances surrounding gold prices haven’t changed, even as the Russian invasion of Ukraine is set to enter month five. Pandemic era fiscal and monetary stimulus are a historical footnote, unlikely to be revived anytime soon. As Russia’s invasion of Ukraine has provoked higher food and energy prices in economies like the EU, the US, and the UK, central banks will continue to raise interest rates aggressively during Q3’22.

Change in Gold Futures (%) versus Change in US 10-year Yield (Real) (bps): Weekly Timeframe (June 2017 to June 2022) (Chart 2)

Gold Q3 2022 Forecast: Fundamental Outlook Weakens

Source: Bloomberg

Accordingly, rising real rates are still a headwind for gold prices over the next few months. Over the past five years, gains by US real yields have been generally correlated with losses by gold prices. A simple linear regression of the relationship between the weekly price change in gold prices and the weekly basis points change for the US 10-year real yield, reveals a correlation of -0.30. As a rule of thumb, rising real yields are bad for gold prices, ceteris Paribas.

Gold’s Shine to Further Wear

In a sense, not much has changed. To reiterate what was said in the Q2’22 forecast, “barring World War 3, it’s difficult to envision how the environment becomes any more appealing for gold prices from a fundamental perspective.” Over the next few months, gold prices have two likely paths forward: sideways (elevated food and energy prices pushed inflation expectations higher as central banks raise rates, keeping the status quo in real yields); or lower (stability in inflation expectations as central banks raise rates, pushing higher real yields).

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

The bullish USD trend turned a year-old last month. And it can be difficult to put into scope everything that’s happened since then but, just last May, DXY was grinding at the same 90 level that had held the lows at the start of the year.

Sentiment at the time still felt overwhelmingly bearish in the Greenback. Covid numbers were still being counted and there was fear that the pandemic was about to rear its ugly head again, which only helped to keep the Fed in an ultra-dovish position. Sure, inflation had started to tick up: In May of last year, CPI had just been released for April at the tune of 4.2%. But – this was the first print over 3% and only the second over the Fed’s 2% target. The bank wasn’t worried and continued to shrug off the risk of higher rates of inflation as transitory.

But its during last Q3 when this theme really started to come to life. In July 2021, inflation data for June was released to the tune of 5.4% and the same number printed a month later, starting to establish a trend. By the time we got to September, the Fed was becoming more responsive, and it was the September FOMC rate decision in which the bank began to forecast actual rate hikes in response to that inflation, with the first expected to land at some point in 2022. The US Dollar broke out at that point and hasn’t really looked back since. I’m illustrating this period of time on the below chart with a blue box.

US Dollar Index (DXY) – Weekly Timeframe (June 2018 to Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

USD Since the Break

Taking a step back to the monthly chart of the USD and it becomes clear that the currency spent much of the past seven years in a range-bound environment.

To be sure, there’s a fundamental drive there, often with the inter-play between the Euro and the US Dollar. But, given the trajectory of the shorter-term trend that’s now projecting a tangle with resistance in the not-too-distant future, this zone is worthy of a look.

There’s been a tendency for resistance to show above the 100 level over the past seven years and, bigger picture, this has been problematic pretty much ever since the Euro came into circulation. But now that we have such divergence between the US and European economy, the door may be open for a topside break.

For upcoming resistance, the 100 psychological level looms large and there’s a Fibonacci level at 101.80. Beyond that we have the 20-year high plotted around 103.54. A breach of that brings fresh multi-decade highs to the USD and I think this is a possibility for 2022 trade, although I’d anticipate it to be more of a second-half type of theme. At least I hope that it is, because if this develops faster it will send a very negative signal about global growth.

Dollar Index (DXY) – Monthly Timeframe (1998- Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

Q3 2022 Forecast for the US Dollar: Bullish

I’m keeping the technical forecast for the US Dollar as bullish for Q3. There’s simply no sign yet that the trend is over and until there are more developments in Europe towards higher rates, it’s difficult to justify the expectation of significant change in this trend.

From a technical perspective, the response to the pullback in late-May is pretty much what one would want to see for bullish continuation scenarios. The pullback was almost a perfect 23.6% retracement, which was quickly followed by a push up to a fresh high. That fresh high printed at 105.79 and that level presents additional breakout opportunity if it’s traded through.

Dollar Index (DXY) – Daily Timeframe (2021- Present)

US Dollar Q3 2022 Technical Forecast: Does the Bull Stampede Have More Room to Roam?

Source: TradingView; Prepared by James Stanley

Bullish Japanese Yen – Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities

Bullish Japanese Yen – Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities

First off, a quick note about my Q2 top trade, which was short GBP/USD, looking for 1.2750-1.2800 from circa 1.3200. The rationale behind this view was that market pricing of monetary tightening was far too aggressive relative to a reluctant hiker in the Bank of England. As it stands, GBP/USD is on course to post its worst quarterly performance since the 2016 Brexit vote, having also dipped below the psychological 1.20 level. There is an argument to be made that I was not ambitious enough in my target.

Looking ahead to Q3, I am of a bullish nature on the Japanese Yen. Two factors why: US bond yields and commodities, in particular oil prices, are both off their highs. These have been the key reasons why the Japanese Yen has been among the worst-performing currencies this year. Now that these two factors are correcting, so can the Japanese Yen as the charts below highlight.

USD/JPY (Black) vs US 10Y YieldUSD/JPY (Black) vs Brent Crude Oil

Bullish Japanese Yen - Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities

Source: Refinitiv

My view on USD/JPY is for 130 before 140, although a reassessment of this view would be necessary if bond yields and oil prices return to their highs. The risk of course with USD/JPY is the fact that the Bank of Japan (BoJ) remain the monetary policy outlier. The BoJ has doubled down on yield curve control after purchasing a record amount of bonds in a week, while central banks in the rest of the world are tightening monetary policy aggressively. What’s more, the BoJ’s actions are despite Japanese officials doubting the merits of an extremely weak currency.

Levels to Watch

Downside: 131.50 (BoJ reaction low), 130.00 (psychological level/round number), 126.36 (May2022 lows)

Topside: 135.00-20 (2002 peak), 136.71 (2022 peak)

Bias: Lower USD/JPY from 1.3600, eyeing a move towards 131.55, the view would be wrong should oil and yields return to highs and USD/JPY breaks 138.00 and if oil and yields return to the highs.

USD/JPY Chart: Daily Time Frame

Bullish Japanese Yen - Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities

Source: Refinitiv

Elsewhere, the recent slew of soft survey data in the form of US and Eurozone PMIs have prompted markets to increase the probability of a recession, more so in Europe. Moreover, should activity data show a marked drop-off an aggressive re-pricing of recession risks is likely to push cross-JPY, which is a good hedge in such an environment. This would be particularly evident across commodity cross-JPY such as AUD/JPY, which has room for a sub 90.00 move.

AUD/JPY

Bullish Japanese Yen - Peak Rates and Oil to Benefit Battered JPY: Top Trading Opportunities

Source: Refinitiv

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Passing into the second half of the trading year, there is considerable upheaval in the fundamental backdrop. All but the technical analyst purists recognize the implications for trade opportunities. With systemic threats of rampant inflation, aggressive interest rate policy and rising fears of recession, it is likely that the normal slide in ‘summer doldrums’ is replaced with unseasonal volatility and heavier pressure for general risk aversion. Risk aversion was not an unfamiliar sight through the first half of 2022. The Dow and S&P 500 pitched lower from record highs almost from the start of the year on their way to ‘bear markets’. Yet, despite this and so many other measures of risk in strong trends lower, USDJPY and the Yen crosses managed to head higher.

Chart of USDJPY with 100-Day SMA and 100-Day Rate of Change (Daily)

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Chart prepared by John Kicklighter, created with IG Platform

One of the unique aspects of the risk aversion that we have seen in this new cycle is that it comes alongside a sharp reversal in global monetary policy. Up until this year, the world’s central banks were flooding the system with money via near-zero interest rate policy and massive stimulus programs. As that largesse is retracted, sentiment reverses but so too does the potential to collect ‘carry’ as yields rise. As the West raised rates aggressively and the BOJ attempted to keep its policy anchored, appetite for return managed to offset the sense of self-preservation for capital. I don’t think that will last moving forward. Should risk aversion deepen, even the hearty yield forecasts through year-end won’t offset the potential exchange rate volatility. Further, it is likely that the BOJ cannot keep up its isolated dovish policy especially as the government worries about the Yen. I will be looking for signs the market is committing to a turn with taking out levels like 132 and 126.

Chart of USDJPY with 100-Month SMA (Monthly)

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Chart prepared by John Kicklighter, Created with IG Platform

When it comes to exchange rates, there is always a relative value that comes into play to define which way the capital is flowing. Relative growth and risk exposure represent key fundamental themes that drive the market; but through the first half of 2022, the principal driver of the FX ‘majors’ has been monetary policy and rate forecasts. Notably, where rate forecasts are relatively close (eg USDCAD), there has been relatively modest trend. EURUSD on the other hand has seen a significant decline of as much as 10 percent through the first half as the ECB attempted to avoid tightening rates while the Fed stepped on the accelerator. A considerable differential was priced in between these two principal economies around April/May, but the tides started to turn into June as the ECB realized it couldn’t avoid the inflation fight any longer.

Central Bank Monetary Policy Standing and Year-End Forecasts

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Chart Created by John Kicklighter

Looking out over the second half of 2022, it is very likely that the Fed will continue a course of significant rate hikes while the ECB wavers on how to start its own tightening regime and at what pace to keep it going. The Dollar’s premium is unlikely to grow significantly more exaggerated than where it was at the midpoint of the year. Should rate differentials and growth trajectories remain on relatively similar courses, I will look for EURUSD to hold up the 1.0635 floor stretching back nearly two decades. A normalization of trend is likely to see some movement back into the broader range up to 1.2150/1.2000. The wild card is the intensity of risk trends. Should risk aversion grow extreme, the Dollar’s safe haven appeal could force a break.

Chart of EURUSD with 50-Week SMA (Monthly)

Short USDJPY on Risk Trends, Long EURUSD on Rates: Top Trading Opportunities

Chart prepared by John Kicklighter with TradingView Charts

Oil Q3 2022 Forecast: Rising Output to Coincide with Easing Demand

Oil Q3 2022 Forecast: Rising Output to Coincide with Easing Demand

The price of oil has fallen roughly 20% from the 2022 high ($130.50) as US President Joe Biden takes further steps to combat high energy prices. Crude may face a further decline over the coming months as rising output is met with easing demand.

US Output Approaches Pre-Pandemic Levels

The Biden administration has called upon Congress to suspend the federal gas tax for the next 90 days while holding ‘emergency meetings’ with refiners in order to curb energy prices. Developments coming out of the US, the world’s largest consumer of oil, may continue to influence the price of crude as production approaches pre-pandemic levels.

Weekly U.S Field Production of Crude Oil

Oil Q3 2022 Forecast: Rising Output to Coincide with Easing Demand

Source: US Energy Information Administration

Recent figures from the Energy Information Administration (EIA) show US production widening to 12,000K from 11,900K in the week ending June 3 to mark the highest reading since April 2020. It remains to be seen if the Organization of Petroleum Exporting Countries (OPEC) will respond to the development as the group announced that July production will be adjusted upward by 0.648 mb/d following the June 2 Ministerial Meeting.

However, the recent adjustment in OPEC output may end up being temporary as the organization increased production by 0.432 mb/d for most of 2022. A further rise in US supply may push OPEC to revert back to its previous schedule as the group acknowledges that “renewed activity is expected to lead into the summer holiday season of the northern hemisphere.”

OPEC Output Schedule with Demand Outlook Unchanged

Table 4- 2: World Oil Demand in 2022

Oil Q3 2022 Forecast: Rising Output to Coincide with Easing Demand

Source: OPEC

OPEC’s Monthly Oil Market Report (MOMR) for June states that “in 2022, oil demand growth remain unchanged at 3.4 mb/d.” The report goes on to say that “world oil demand is projected to average 100.29 mb/d, which is same as the previous month’s estimates.”

The report also forecasts that demand is expected to exceed 2019 by 0.09 mb/d. Signs of slowing US economy may encourage OPEC to throttle back production later this year as “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.”

Efforts by the Biden administration along with the rise in US crude output may continue to drag on the price of oil. Crude may face a bear market over the coming months if the outlook for global demand deteriorates.