Global oil supply will “struggle” to keep pace with surging demand next year, a report by the International Energy Agency says, suggesting consumers will continue to face tough oil markets in coming months.
A growing Chinese economy will drive the demand up in 2023, while the tighter sanctions imposed against Russia over its military offensive in Ukraine force it to shut more wells and some producers come up against capacity constraints, the Paris-based agency said in its monthly report.
EU countries have agreed to ban 90 per cent of their imports of Russian crude and oil products, to be phased out over the next six to eight months.
Output from Opec+, the 23-member group of oil producers led by Saudi Arabia and Russia, is expected to surge by 2.6 million barrels per day this year, but it could contract by 520,000 bpd next year after mounting sanctions against Moscow.
Russian output is expected to drop by nearly 3 million bpd to reach 8.7 million bpd by the start of 2023 due to the global sanctions.
The modest increases from Opec+ will provide a partial offset, but non-Opec+ countries will dominate gains for the rest of the year and in 2023, the IEA said.
The non-Opec+ bloc, led by the US, will add 1.9 million bpd in 2022 and 1.8 million bpd next year.
But to keep the “implied balance from tipping into deficit”, Opec+ “would have to further tap into its dwindling capacity cushion, reducing it to historic lows of just 1.5 million bpd”, the IEA said.
“As for Opec+, total oil output in 2023 may fall as embargoes and sanctions shut in Russian volumes and producers outside the Middle East suffer further declines," the report said.
“Assuming Libya rebounds from a steep drop, the bloc’s production could increase 2.6 million bpd this year, eroding its spare capacity cushion."
Oil supplies would soon match the demand but it would not be permanent, the IEA said.
“After seven consecutive quarters of hefty inventory draws, slowing demand growth and a rise in world oil supply through the end of the year should help world oil markets rebalance,” the report said.
But this balance might prove short-lived as “tougher sanctions on Russia come into full force, oil demand in China recovers from Covid-lockdowns … and the Opec+ spare production capacity cushion erodes”, it said.
In its first 2023 forecast, the IEA said the global oil demand is projected to rise more than 2 per cent a year to reach 101.6 million barrels per day in 2023, passing the pre-coronavirus pandemic levels.
Although mounting prices and weakening economic outlook are moderating consumption increases, a resurgent China will drive gains next year, it said.
The demand growth, meanwhile, will accelerate more than 22 per cent to 2.2 million bpd next year from 1.8 million bpd in 2022.
“Higher oil prices and a weaker economic outlook continue to temper our oil demand growth expectations," the IEA said.
"But in 2023, a resurgent China will boost non-OECD [Organisation for Economic Co-operation and Development] demand growth, offsetting a slowdown in the OECD."
China, the world's top oil importer, is reintroducing some Covid-19 restrictions as cases surge in the capital Beijing, which could affect demand.
Authorities are carrying out mass testing to prevent the spread of the disease as the Chinese government continues to pursue its “zero-Covid” strategy.
The OECD countries are expected to lead the expansion this year, but non-OECD economies are set to account for nearly 80 per cent of the growth next year, the IEA said.
Geopolitical and economic uncertainty is mounting around the world after Russia’s war in Ukraine, with inflation also rising due to higher commodity prices and supply chain disruptions.
In April, the International Monetary Fund lowered its 2022 growth forecast to 3.6 per cent, from its previous estimate of 4.4 per cent in January.
The World Bank also cut its growth forecast for the global economy for the second time this year as the Ukraine war, now in its fourth month, exacerbates the slowdown from the pandemic.
This week, Opec maintained its forecast that world oil demand will exceed pre-pandemic levels in 2022, but said the Russia-Ukraine war, developments related to the pandemic and inflationary pressures posed a considerable risk.
The crude oil exporters group maintained its oil demand forecast for this year at 3.36 million bpd, unchanged from the previous month's forecast.
The global refining capacity is set to expand by 1 million bpd this year and 1.6 million bpd in 2023, boosting throughputs by 2.3 million bpd and 1.9 million bpd respectively, the IEA said.