Global oil demand set to break record with half of gain from China: IEA
Global oil demand is set to rise by 1.9 million barrels per day (bpd) this year to a record 101.7 million bpd, with nearly half of the gain from China following the lifting of its COVID-19 restrictions, the International Energy Agency (IEA) said in its monthly oil market report on Wednesday.
"This year's oil use is now seen at 101.7 million bpd, 80,000 higher than in last month's report and an all-time high. Jet/kerosene accounts for 45% of this year's demand gains, by far the largest contributor," the report read.
Changes to the road vehicle fleet will eliminate 870,000 bpd of incremental consumption thanks to efficiency gains and electric vehicles, according to IEA.
This occurs against a backdrop of lower prices, a somewhat improved economic outlook, and a faster-than-anticipated reopening of China, the IEA said, adding that overall, the global economic climate stays challenging, with mild recessions on the cards for the US and eurozone according to consensus estimates.
The agency stressed that "two wild cards dominate the 2023 oil market outlook: Russia and China," with the possibility of supply tightening as western sanctions impact Russian exports.
As Chinese oil demand returns to growth, the country is expected to overtake India this year as the world’s leader in oil demand growth. The IEA has revised up the estimated increase in Chinese oil demand by 40,000 bpd to 850,000 bpd year-on-year. An accelerating mobility recovery by the second quarter of 2023 will buttress gasoline and gasoil use.
- Supply growth to dramatically slow this year
Global oil supply growth in 2023 is set for a dramatic slowdown as OPEC+ shifts into contraction following last year’s massive 4.7 million bpd expansion, dominated by the producer bloc, according to the agency.
Gains of 1 million bpd are projected to be fueled by the US, replacing Saudi Arabia, along with Brazil, Norway, Canada, and Guyana, all producers outside the OPEC+ alliance (non-OPEC+).
An overall non-OPEC+ increase of 1.9 million bpd will be tempered by an OPEC+ decline of 870,000 bpd as Russia feels the full weight of sanctions.
Excluding Russia, oil supply from the rest of the OPEC+ could expand by 460,000 bpd in 2023 with Libya ranking as the top source of growth.
Though modest versus 2022, growth in 2023 will still lift the total oil supply to an all-time high of 101.1 million bpd. At 101 million bpd, production in December was down 860,000 bpd month-on-month.
- Supply-demand deficit could develop in second half
The Agency noted that although the world oil supply is poised to outpace demand in the first quarter and meet it in the second quarter, a substantial deficit could develop in the second half of the year as demand gallops ahead.
In this case, that would shift the focus onto spare production capacity, most of which is held by Saudi Arabia, along with the UAE.
"Effective spare capacity, excluding volumes shut in by sanctions on Iran and Russia, is projected to average 3.5 million bpd in 2023, up from 3.2 million bpd in the fourth quarter of 2022. But if OPEC+ were to respond to the call on its crude and ramp up to balance the market, that spare cushion would be squeezed wafer thin," the agency noted.
By Ebru Sengul Cevrioglu