By Barani Krishnan

Investing.com – Oil bulls anticipating supportive words from the world’s biggest producers got a dose of reality instead as OPEC cautioned on Thursday that high prices could hurt demand for the crude it pumps.

In its monthly report, the Organization of the Petroleum Exporting Countries (13 members) stated that there was a slowdown in the rate of recovery for the fourth quarter of 2021 due to higher energy prices. 

The Saudi-led OPEC also cited slower-than-expected demand in China and India — the second and third largest oil importers, respectively — for the downward revision.

Oil bulls, who’ve treated any pessimistic outlook on crude prices this year like water off a duck’s back, sent crude prices higher by Thursday’s settlement to steady the market after a sharp selloff the previous day, triggered also by worries of inflation from high energy prices.

After initially being in the red about the OPEC outlook, WTI, the benchmark crude oil price, ended up 25c, or 0.3% at $81.59/barrel. WTI plunged 2.8% Wednesday in the worst week since October, when it hit a high of over $85 for seven years.

The global standard for oil, London-traded crude gained 0.3% or 23 cents to $82.87. Brent dropped 2% after reaching a record $86 for the third consecutive month.

OPEC, part of the larger OPEC+ alliance that groups its original 13 members with 10 other producers steered by Russia, said it expects  demand for its oil to average 99.49 million barrels per day in the fourth quarter of 2021, down 330,000 bpd from last month’s forecast. 

It lowered its year-end demand growth forecast by 160,000 to 5.65million bpd.

The trade’s response to the OPEC outlook was understandable, given that most members of the cartel are price hawks first. It is important to remember that the nearly 70% rise in crude oil this year resulted primarily from Saudi refusing to increase production meaningfully in an environment where energy demand has increased following the outbreak of the coronavirus pandemic.

The Saudis have maintained for months that the larger OPEC+ alliance should not add more than 400,000 bpd to global production in the foreseeable future — even as energy experts say the world needs at least a million bpd more in the near-term to cool crude prices.

In fact, some analysts saw OPEC’s downward revision of its demand forecast as a sly attempt to reinforce its policy of not allowing OPEC+ to add more than 400,000 bpd to its exports.

Fair enough, oil-producing countries have been having difficulty revving up after being low for over a year due to the pandemic. 

But the Saudis and Russians have virtual turn-on, turn-off switches for additional production, granting the status of “swing producers”.

“Whether the acknowledgement of higher prices affecting economic activity and demand will encourage the group to increase output more at an upcoming meeting is another thing,” said Craig Erlam, analyst at online trading platform OANDA.