According to the IEA Oil Market Report, world oil demand in 2023 is forecast to grow by 2.2 mb/d year-on-year, with China’s rebound even stronger than previously expected.
China’s demand recovery continues to surpass expectations, with the country setting an all-time record in March at 16 mb/d. The world’s second biggest oil user after the US will account for nearly 60 per cent of global growth in 2023.
Record demand in China, India and the Middle East at the start of the year more than offset lacklustre industrial activity and oil use in the OECD. The latter accounts for just 15 per cent of growth this year, supported by consumer spending and personal mobility.
Overall, world oil demand is set to average 102 mb/d in 2023, 1.3 mb/d more than 2019.
Oil prices retreated during April and early May as concerns over the health of the global economy and oil demand prospects depressed market sentiment. North Sea Dated plunged by nearly $16/bbl in just two weeks, reversing gains that followed the surprise announcement by some OPEC+ countries to cut output from May.
Prices were pressured lower by muted industrial activity and higher interest rates, which, combined have led to recessionary scenarios gaining traction and worries of a downward shift in oil demand growth. The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d.
On the supply side, hefty losses from Iraq’s northern Kurdish region following the shutdown of the Iraq-Türkiye export pipeline since end-March, wildfire disruptions in Canada, worker protests in Nigeria and maintenance related cuts in Brazil have dominated recent news. Yet, so far, these outages have neither prompted a spike in prices nor triggered a visible decline in inventories.
At the same time, Russian oil supply continued to prove resilient. In April, Russian oil exports reached a post-invasion high of 8.3 mb/d.
By IEA’s estimates, Moscow did not deliver its announced 500 kb/d supply cut in full. Indeed, Russia may be boosting volumes to make up for lost revenue. The country’s oil export revenues rose by $1.7 billion to $15 billion last month but were 27 per cent lower than a year ago while tax receipts from its oil and gas sector were down by 64 per cent y-o-y.
Russia seems to have few problems finding willing buyers for its crude and oil products, frequently at the expense of fellow OPEC+ members in the two-tier market that has emerged since the embargoes came into force.
New refining capacity is driving a continued shift east in forecast crude runs for the remainder of the year, mirroring regional demand strength. Record runs from refiners with access to discounted feedstock along with sustained Russian product exports and lacklustre global diesel demand have undermined product cracks, margins and crude price premiums.
With world oil supply set to fall further this month as new OPEC+ cuts take effect, global oil inventories may again come under pressure. The release of record volumes from IEA government stocks over the past year has reduced the industry inventory deficit versus its five-year average to less than 90 mb from more than 300 mb a year ago.
Preliminary data for April show a rise in on land product stocks. Those builds may help mitigate price volatility in the coming months if supply falls short of the seasonal rise in world oil demand.
