The International Energy Agency’s (EIA) October Oil Market Report revealed preliminary data for September, indicating signs of falling demand, notably in the US, where gasoline consumption reached its lowest level in two decades.
Nonetheless, strong demand growth from China, India, and Brazil remains a key driver, with global oil demand expected to grow by 2.3 million b/d to reach 101.9 million b/d in 2023, with China contributing 77% of this growth. However, growth is expected to slow to 900,000 b/d in 2024 due to efficiency gains and a deteriorating economic climate.
In September, world oil production rose 270,000 b/d to 101.6 million b/d, primarily driven by increased output from Nigeria and Kazakhstan. Notably, the Israel-Hamas conflict did not directly impact oil flows. “The Middle East conflict is fraught with uncertainty and events are fast developing. Against a backdrop of tightly balanced oil markets [...] the international community will remain laser focused on risks to the region’s oil flows,” IEA said.
Global oil production growth is expected to continue, with non-OPEC+ countries leading the way. Output is projected to reach new record highs with a 1.5-million b/d increase in 2023 and a further 1.7 million b/d in 2024. OPEC+ output, however, is expected to decline in 2023, although Iran may become the world’s second-largest source of production growth following the US, IEA said.
Tightening balances following Saudi Arabia’s extension of voluntary supply cuts sent ICE Brent crude oil futures up by $8/bbl in September. However, gains dissipated in early October as renewed macro concerns and signs of US demand destruction took hold. Brent crude oil futures rose by $4/bbl after Hamas attacked Israel on Oct. 7 as traders reassessed geopolitical risks. Prices have stabilized, with benchmark Brent futures trading at $87/bbl on Oct. 12.
“While there has been no direct impact on physical supply, markets will remain on tenterhooks as the crisis unfolds,” IEA said.
Refining
Refinery margins fell sharply from near-record levels throughout September and into October, mainly due to drops in gasoline and fuel oil cracks. Nevertheless, overall refinery margins remained above the seasonal average. Global refinery throughput rates reached a summer peak of 83.6 million b/d in August, underpinned by record Chinese runs. Refinery crude runs are expected to rise by 1.7 million b/d in 2023 and by 1 million b/d next year.
“Middle distillate markets are tight heading into the Northern Hemisphere winter. Ten months after the EU embargo on Russian crude came into effect, European refiners still struggle to lift processing rates and diesel output. Sustained high gasoil imports will be required, but stringent winter quality specifications constrain the available supply pool. It may take another mild winter to avoid shortages,” IEA said.
Oil inventories
Global oil inventories decreased 63.9 million bbl in August, driven by a drawdown of 102.3 million bbl in crude oil stocks. Preliminary data for September suggests that land inventories continued to decrease, while oil stocks on water rebounded as exports picked up. Within OECD countries, industry stocks decreased by 6.5 million bbl in August, reaching 2,816 million bbl, 105.3 million bbl below the 5-year average.
Russian oil exports
Russian oil export revenues increased $1.8 billion to $18.8 billion in September, their highest since July 2022. Total oil exports rose by 460,000 b/d to 7.6 million b/d, with crude oil accounting for 250,000 b/d of the increase. The weighted average crude export price rose by $8/bbl to $81.8/bbl, narrowing its discount to North Sea Dated to $12.2/bbl, its lowest since March 2022.
