- IEA said world oil demand is set to hit a record 101.9 million barrels per day, driven mostly by stronger consumption in China after the lifting of Covid restrictions there
According to Zawya article published on April 17, 2023, the International Energy Agency has projected that world oil demand would grow by two million barrels per day this year, and warned surprise output cuts from the Opec+ producer group risk exacerbating an anticipated supply deficit and could thwart an economic recovery.
In its latest monthly oil market report, the IEA said world oil demand is set to hit a record 101.9 million barrels per day, driven mostly by stronger consumption in China after the lifting of Covid restrictions there.
IEA’s prediction of a significant supply shortfall by year-end has triggered an oil price rally. Oil prices were up on Friday and secured a fourth straight week of gains after the forecast that global demand will hit a record high this year on the back of a recovery in Chinese consumption. Brent crude futures settled at $86.31 a barrel after rising by 22 cents or 0.3 per cent, as the US West Texas Intermediate crude futures (WTI) settled at $82.52 a barrel after gaining 36 cents or 0.4 per cent.
Dubai Mercantile Exchange said on Wednesday that global oil demand is expected to reach a total of around 102-million barrels per day in 2023 due to the re-opening of the Chinese economy post-Covid and a rebound in air traffic.
IEA’s forecast of a supply deficit is contrary to the latest projection by the US Energy Information Administration that the oil market would remain in surplus despite the surprise Opec cut. The US agency said that the global oil market will remain in surplus this year and next as demand growth could be hurt by lower-than-expected economic growth in the coming months. Despite Opec and Russian production declining, EIA expects global oil production to increase by 1.5 million bpd in 2023.
On the other hand, the London-based IEA said it expected global oil supply to fall by 400,000 barrels per day by the end of the year, citing an expected production increase of 1 million bpd from outside of Opec+ beginning in March versus a 1.4 million barrels per day decline from the group.
Market analysts said signs of demand recovery in China, the top importer of crude oil and products, also provided more support for oil prices. Also helping to boost prices was the US oil rig count, an indicator of future supply, which fell for the third week in a row, according to Baker Hughes data. US oil rigs fell by two to 588 this week, their lowest since June 2022.
According to JP Morgan analyst Christyan Malek, while the surprise decision earlier this month to decrease production by 1.2 million barrels a day was seen as a bullish sign for the oil market, it is a “red flag” for oil stocks because Opec is reacting to weak demand that may take a while to rebound.
He observed that oil stocks have tended to post tepid returns at best after Opec production cuts, even though those cuts are meant to boost oil prices. “On balance, energy equities generally struggle to outperform the broader market and at best trades broadly flat in the context of OPEC cuts aimed at managing supply in the face of deteriorating economic fundamentals,” Malek wrote.
