IEA cuts 2023 oil demand forecast again on slowing China growth and Europe's energy crisis

Paris-based agency now expects oil demand to grow by 1.6 million bpd next year, down from previous estimate of 1.7 million bpd

Pump jacks operate in front of a drilling rig in an oilfield in Texas. The IEA expects demand for diesel to fall next year amid record-high prices. Reuters
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The International Energy Agency lowered its global oil demand growth estimate for next year again on weak economic growth in China, Europe’s energy crisis and a strong dollar.

The Paris-based agency now expects oil demand to grow by 1.6 million barrels per day in 2023, down from its previous estimate of 1.7 million.

The decision by Opec+, a supergroup of oil producers, to reduce production by 2 million bpd and an EU ban on Russian crude will reduce global oil supply by 1 million bpd for the remainder of this year, the IEA said in its monthly oil market report.

“The approaching EU embargoes on Russian crude and oil product imports and a ban on maritime services will add further pressure on global oil balances, and in particular, on already exceptionally tight diesel markets,” the energy body said.

“A proposed oil price cap may help alleviate tensions, yet a myriad of uncertainties and logistical challenges remain.”

Lowered forecast weighed on oil prices on Tuesday, pushing them down slightly.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.83 per cent lower at $92.37 a barrel at 6.38pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was down nearly 1 per cent at $85.09.

Meanwhile, global demand for diesel and gas oil is estimated to fall to 400,000 bpd in 2022, from 1.5 million bpd last year, before declining slightly in 2023, said the IEA, which blamed the reduction on “persistently high” prices and a slowing economy.

Diesel is the backbone of global economic activity and markets were already in deficit before Russia’s invasion of Ukraine in February.

This was due to the closure of 3.5 million bpd of refinery distillation capacity since the start of the Covid-19 pandemic, resulting in a net decline of 1 million bpd, the IEA said.

Diesel prices and its price differential to crude surged to record levels last month and are now 70 per cent and 425 per cent higher, respectively, compared with year-ago levels, while benchmark Brent prices increased 11 per cent during the same period, it said.

An additional 1.1 million bpd of crude and 1 million bpd of diesel, naphtha and fuel oil will have to be replaced once the EU embargo on Russian crude oil and product imports come into effect in December 2022 and February 2023, respectively, the IEA said.

“For crude oil, no significant buying from Russia outside China, India and Turkey has appeared despite massive discounts,” it said.

“A further rerouting of trade should help ease pressures but a shortage of tankers is a major concern.”

Global crude oil stocks fell by 14.2 million barrels in September, while OECD oil stocks dropped by 45.5 million barrels.

On Monday, Opec lowered its global oil demand forecast for this year and next, citing China’s zero-Covid policy, geopolitical uncertainty and weaker economic activity.

Global oil demand will increase by 2.5 million bpd this year, lower than Opec’s previous estimate of 2.6 million bpd, the group of oil-producing countries said in its monthly oil market report.

World oil demand next year will grow by 2.2 million bpd, down from an earlier estimate of 2.3 million bpd, Opec said.

Updated: November 15, 2022, 3:21 PM