IEA raises 2023 global oil demand estimates as China reopens its economy

World oil demand will climb to a record 101.9 million barrels per day, the agency says

A pump jack in Texas. Non-OECD countries, buoyed by China, will account for 90 per cent of the 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 two million barrels per day to a record 101.9 million bpd this year, the Paris-based agency said on Friday.

Countries that are not members of the Organisation for Economic Co-operation and Development, buoyed by a resurgent China, will account for 90 per cent of the growth.

“While oil demand in developed nations has underwhelmed in recent months, slowed by warmer weather and sluggish industrial activity, robust gains in China and other non-OECD countries are providing a strong offset,” the agency said.

In the first quarter of this year, OECD oil demand fell 390,000 bpd annually but a solid Chinese rebound lifted global oil demand by 810,000 bpd above the levels of the previous year to 100.4 million bpd.

A much stronger increase of 2.7 million bpd is expected through to the end of the year, propelled by a continued recovery in China and international travel, according to the energy agency.

The report comes a day after Opec stuck to its 2023 growth projection for oil demand, despite lowering its forecast in North America and Europe amid a slowing global economy.

The oil producers' group said better crude demand in OECD countries, led by China, was balancing out the market.

China reopened its economy earlier this year after enforcing movement restrictions to contain the spread of the coronavirus pandemic.

Opec expects crude demand to grow by 2.3 million bpd this year to 101.89 million bpd.

However, that assessment is “subject to many uncertainties”, including the “trend and pace of economic activity” in OECD and non-OECD countries, it said.

Opec expects the non-OECD region's oil demand to grow by 2.2 million bpd this year while in OECD countries, it is projected to increase only slightly, to above 100,000 bpd annually.

The agency also warned that the surprise output cuts announced last week by Opec+ producers “risk aggravating an expected oil supply deficit in [the] second half of 2023 and boosting oil prices”, hurting consumers and the global economic recovery.

“Consumers confronted by inflated prices for basic necessities will now have to spread their budgets even more thinly,” it said.

“This augurs badly for the economic recovery and growth.”

The Opec+ cuts would lower global oil supply by 400,000 bpd by the end of the year, it added.

The IEA's warning sent oil prices lower on Friday. Brent, the benchmark for two thirds of the world’s oil, was trading 0.17 per cent lower at $85.94 a barrel at 12.22pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 0.12 per cent at $82.06 a barrel.

Last week, Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria announced that they would make voluntary oil production cuts of 1.16 million bpd from May until the end of this year.

The precautionary measure is aimed at supporting the stability of the oil market, they said at the time.

Russia also said the 500,000 bpd cut it is making from March to June would continue until the end of the year. The latest move by Opec+ is in addition to the 2 million bpd production cut introduced by the group in October.

In March, Russian oil exports soared to their highest since April 2020, driven by surging product flows that returned to levels last registered before Russia invaded Ukraine, the IEA said.

Estimated oil export revenue rebounded by $1 billion to $12.7 billion but was 43 per cent lower than a year ago.

The voluntary production cuts by Opec+ members should tighten the oil market further from May and boost prices, according to latest estimates by Swiss lender UBS, which expects crude prices to rally towards the $100-a-barrel mark in the coming quarters.

On Wednesday, IEA executive director Fatih Birol said he expected the global oil market to tighten in the second half of 2023, which would push prices higher.