IEA raises 2023 global oil demand estimates on China’s reopening

Jet fuel demand is expected to reach 90% of 2019 levels this year

An oil refinery in Lanzhou. China is expected to drive oil demand growth this year. Reuters

The International Energy Agency has raised its 2023 global oil demand estimates as top crude importer China reopens its economy after about three years of adhering to a strict zero-Covid policy.

Global oil demand will rise by 2 million barrels per day to 101.9 million bpd this year, said the agency, which had forecast a growth of 1.9 million bpd last month.

“Nearly a year on from Russia’s invasion of Ukraine, global oil markets are trading in relative calm,” the Paris-based agency said in its monthly oil market report on Wednesday.

“World oil supply looks set to exceed demand through the first half of 2023, but the balance could quickly shift to deficit as demand recovers and some Russian output is shut in.”

China, which is expected to consume 900,000 bpd of crude this year, “dominates” the growth outlook, with the reopening of its borders boosting air traffic, the agency said.

Jet fuel demand will increase by 1.1 million bpd to 7.2 million bpd, or about 90 per cent of 2019 levels, according to the agency's estimates.

Meanwhile, global crude output is expected to rise by 1.2 million bpd this year, driven by non-Opec+ countries, said the agency, which expects Russian supply to contract this year on western sanctions.

Russia, the world’s second-largest oil producer after Saudi Arabia, said it would cut oil production by 500,000 bpd, or about 5 per cent of its crude output, in March after the West imposed price caps on its crude and refined oil products.

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.

Russian oil exports in January rose by 300,000 bpd from a month ago to 8.2 million bpd, the agency said.

The country’s export revenue stood at $13 billion, slightly higher than in December, but down 36 per cent from the same period a year ago, the agency said.

“The impact on Russia’s product exports following the EU embargo and price cap … will be a key factor when it comes to meeting that demand growth,” said the agency.

“So will Beijing’s stance on domestic refinery activity and product exports amid its reopening.”

The report comes a day after Opec raised its 2023 oil demand forecast by 100,000 bpd.

The oil producers' group now expects global oil demand to grow by 2.3 million bpd this year, which is higher than its previous estimate of 2.2 million bpd.

Opec also revised its global economic growth forecast for this year to 2.6 per cent on “better-than-anticipated” economic performance in key countries in the second half of 2022.

It previously estimated growth of 2.5 per cent.

Meanwhile, the International Monetary Fund recently raised its global economic growth estimate for this year to 2.9 per cent, from a previous forecast of 2.7 per cent.

Global economic growth may be reaching a “turning point”, supported by falling inflation and China’s reopening, IMF managing director Kristalina Georgieva said on Sunday.

“While this is encouraging, the balance of risks remains tilted to the downside. China’s recovery could stall [and] inflation could remain higher than expected,” she said.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.2 per cent lower at $84.55 a barrel at 2.02pm UAE time on Wednesday.