Global oil demand set to rise 'sharply' on air travel rebound and China recovery

Russia's crude exports fell by more than 500,000 bpd last month

A floating refinery and storage vessel crosses Egypt's Suez Canal. Global oil demand will rise by 2 million bpd in 2023. AFP

The International Energy Agency expects global oil demand to rise “sharply” this year amid a rebound in air traffic and pent-up Chinese demand.

Oil demand growth will “accelerate” to 2.6 million barrels per day in the fourth quarter of this year, from 710,000 bpd in the current quarter, the Paris-based agency said on Wednesday, as it released its February oil market report.

Global oil demand in 2023 will rise by 2 million bpd, compared with 2.3 million bpd last year. This was unchanged from last month’s forecast.

“The market is caught in the cross-currents of supply outstripping still-lacklustre demand, with stocks building to levels not seen in 18 months,” the agency said.

“Much of the supply overhang reflects ample Russian barrels racing to reroute to new destinations under the full force of EU embargoes.”

Russian production remained at prewar levels but the country’s February crude exports fell by more than 500,000 bpd following the introduction of a G7 price cap and an EU embargo on refined oil products, the agency said.

On February 5, the G7 and the EU agreed to set the price cap at $100 a barrel for products that trade at a premium to crude, such as diesel, and $45 a barrel for products that trade at a discount, such as naphtha and fuel oil.

Russia accounted for about 40 per cent and 20 per cent of Indian and Chinese crude imports, respectively, in February, the agency said.

The two countries took in more than 70 per cent of Russia’s crude exports last month, it said.

“Willing buyers in Asia … have snapped up discounted crude oil cargoes, but increasing volumes on the water suggest the share of Russian oil in their import mix may be getting too big for comfort,” the agency said.

Meanwhile, Russia’s oil export revenue fell by $2.7 billion to $11.6 billion last month.

Even with a Russian output cut of 500,000 bpd in March, global supply should “comfortably” exceed demand in the first half of 2023, the agency said.

“Building stocks today will ease tensions as the market swings into [a] deficit during the second half of the year when China is expected to drive world oil demand to record levels.”

China, the world’s second-largest economy and top crude importer, reopened its borders in January after adhering to a strict zero-Covid policy for about three years.

The country is aiming for a growth in gross domestic product of 5 per cent in 2023, after it expanded by 3 per cent in 2022.

Opec raised its forecast for Chinese oil demand growth on Tuesday on the relaxation of Covid-19 measures. However, it stuck to its global demand estimate of 2.3 million bpd, citing a potential economic slowdown in Europe and the Americas.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.72 per cent lower at $76.89 a barrel at 3.03pm UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.77 per cent at $71.88 a barrel.