(Montel) China's restart to drive global oil demand to record high

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Global oil demand is set to reach a record 101.7m bbl/day this year, as China’s recent reopening fuels the world’s thirst for crude, the International Energy Agency (IEA) said on Wednesday.

“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the IEA said in its latest monthly report.

Demand for oil is expected to rise by 1.9 mb/d in 2023, of which nearly a half will come from China as the country earlier in January reopened its borders after three years of Covid-19 restrictions, therefore “tightening the balances as Russian supply slows under the full impact of sanctions”.

Benchmark crude oil prices have gained more than 10% over the past two weeks amid the prospect of rising demand from China this year. The front-month contract for Brent crude North Sea oil rose above USD 87/bbl today for the first time since early December.

Opec said in a report on Tuesday that the forecast for world oil demand growth for 2023 was unchanged at 2.2m bbl/day, but flagged uncertainties around global economic developments, shifts in coronavirus-related policies and geopolitical tensions.

Russia’s invasion of Ukraine last year led to a cut in oil and gas exports, leaving Western powers scrambling to fill the gap at a time when the debate on the energy transition has become omnipresent.

The IEA pointed out that Russian oil exports had fallen by 200,000 bbl/day in December from the month before, as the EU placed an embargo against maritime shipments of crude oil from Russia and agreed to a price cap following talks at the G7 summit.

Exports have, since then, partially rebounded, the Paris-based agency added, “underscoring the high degree of uncertainty for the outlook”.

Tightening market?

As Western sanctions will continue to hit Russian exports, “the well-supplied oil balance at the start of 2023 could quickly tighten,” it however stated. “Product markets, especially diesel, are most at risk just as demand growth recovers.”

The IEA yet highlighted that fresh supplies from new plants in the Middle East and from China would provide “welcome relief” for diesel. “Chinese diesel is already arriving in Europe after Beijing raised export quotas late last year.”

On the oil supply side, growth is expected to slow to 1m bbl/day this year following last year’s 4.7m bbl/day expansion, the agency said.

In a move criticised by Washington, Opec and its Russia-led partners, known as Opec+, pledged last October to cut its output by 2m bbl/day in November.

The IEA also noted that gains in energy efficiency and surging sales of electric vehicles (EV) would curb oil demand growth in 2023 by almost 900,000 bbl/day. “Moving forward, accelerating efficiency gains, supporting EV uptake and prudent handling of government stocks will be more crucial than ever.”