IEA expects tighter oil market in second half of 2023 despite recession fears

China will account for about 60 per cent of global demand growth this year, energy agency says

Brent crude, the benchmark for two thirds of the world’s oil, has shed more than 12 per cent of its value this year. Reuters
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The International Energy Agency raised its 2023 global oil demand estimates again on Tuesday and said the current pessimism in the market is in “stark contrast” to the agency’s expectations of a tighter market in the second half of the year.

The agency now expects global crude demand to rise by 2.2 million barrels per day in 2023, an increase of 200,000 bpd from its April forecast.

“Prices were pressured lower by muted industrial activity and higher interest rates, which, combined, have led to recessionary scenarios gaining traction and worries of a downward shift in oil demand growth,” the agency said in its monthly oil market report on Tuesday.

Brent crude, the benchmark for two thirds of the world’s oil, has lost more than 12 per cent of its value this year amid demand concerns and a regional banking crisis in the US, which rattled financial markets.

The international benchmark was trading 0.23 per cent lower at $75.06 a barrel at 4pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.20 per cent at $70.97 a barrel.

The agency, which expects crude demand to exceed supply by 2 million bpd in the second half of this year, said demand recovery in China, the world’s largest crude importer, has beaten estimates, reaching a record 16 million bpd in March.

China, which reopened its economy earlier this year, will account for about 60 per cent of global demand growth in 2023, the agency said.

Meanwhile, Russian oil exports hit 8.3 million bpd in April, the highest since Moscow’s invasion of Ukraine last year, the agency said.

“By our estimates, Moscow did not deliver its announced 500,000 bpd supply cut in full. Indeed, Russia may be boosting volumes to make up for lost revenue.”

The country’s oil export revenue rose by $1.7 billion to $15 billion in April but was down 27 per cent from a year earlier, the IEA said.

From April through December, Opec+ supply is set to fall by 850,000 bpd as the group enforces its additional supply cuts, the agency said.

For the full year, global crude supply is expected to rise by 1.2 million bpd, led by the US and Brazil.

Last month, Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria announced voluntary output cuts of 1.16 million bpd.

The cuts, which will be in place from May until the end of the year, are aimed at ensuring oil market stability, the producers said at the time.

Despite significant disruptions to the supply side, including the shutdown of the Iraq-Turkey export pipeline, wildfires in Canada, worker protests in Nigeria and maintenance-related cuts in Brazil, there has been no notable increase in prices or visible reduction in stocks, the IEA said.

In its latest oil market report, Opec stuck to its 2023 growth projection for oil demand but slightly lowered its forecast for regions other than China.

The crude producers' group expects world oil demand to hit 101.9 million bpd this year.

Updated: May 16, 2023, 12:36 PM