IEA: Mounting economic headwinds impeding demand gains

Global oil demand growth will slow to 1.6 million b/d in 2023, down from 2.1 million b/d this year, as mounting economic headwinds impede gains, the International Energy Agency (IEA) said in its November oil market report.

“The GDP outlook has worsened, and 2022 fourth-quarter global oil use will contract (-240,000 b/d) compared with last year. China’s persistently weak economy, Europe’s energy crisis, burgeoning product cracks and the strong US dollar are all weighing heavily on consumption,” IEA said.

“Oil markets remain finely balanced going into the winter months, with OECD stocks trending at the lowest levels since 2004. 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. A proposed oil price cap may help alleviate tensions, yet a myriad of uncertainties and logistical challenges remain.”

World oil supply rose 410, 000 b/d in October to 101.7 million b/d but is forecast to fall by 1 million b/d for the remainder of the year as OPEC+ cuts and an EU ban on Russian crude come into effect. Annual growth of 4.6 million b/d this year is set to boost global production to 99.9 million b/d. Modest gains of just 740, 000 b/d in 2023 will push supply to 100.7 million b/d, IEA forecasts.

Global refinery throughputs in October fell by 500,000 b/d m-o-m to 80.4 million b/d, with a 1.1 million b/d decline in the Atlantic Basin partly offset by higher runs East of Suez. New refinery capacity coming online will go some way to offset potential losses from Russia. Refinery runs are forecast to increase by 2.3 million b/d in 2022 and 1.4 million b/d next year. Diesel cracks surged to new records, keeping margins at elevated levels.

Russian oil exports rose by 165,000 b/d to 7.7 million b/d in October as shipments to the EU, China, and India held up and lower flows to Turkey were more than offset by increases to yet to be identified destinations, according to IEA. Crude oil exports to the EU crude were 1.5 million b/d, 1 million b/d below pre-war levels. Product exports were down 300,000 b/d, to 1 million b/d, including 600 ,000 b/d of diesel. Russia’s export revenues rose by $1.7 billion to $17.3 billion.

Global observed inventories fell by 14.2 million bbl in September as OECD and non-OECD stocks plunged by 45.5 million bbl and 19.3 million bbl, respectively, but were partially offset by a surge in oil on the water of 50.6 million bbl. OECD industry oil stocks declined by 8 million bbl, while government stocks drew by 37.4 million bbl. OECD total oil stocks fell below 4 billion bbl for the first time since 2004.

In October, North Sea Dated posted its first increase in 4 months, rising $3.35/bbl to $93.11/bbl as signs of a tight market prevailed over economic uncertainty. Oil prices remain about 30% below their June peak. Brent backwardation weakened slightly while open interest continued to languish near 7-year lows. Freight rates rose on higher exports and as the shift away from Russian barrels increased tension on available fleet capacity.