Following a modest year-on-year contraction in fourth-quarter 2022, global oil demand is set to rise by 2 million b/d in 2023 to 101.9 million b/d, the International Energy Agency (IEA) forecasts in its February monthly oil report. That compares with a demand forecast of 101.7 million b/d in the agency's January report.
The Asia-Pacific region (+1.6 million b/d), fueled by a resurgent China (+900,000 b/d), dominates the growth outlook, IEA said. The reopening of borders will boost air traffic. Jet/kerosene demand is expected to increase by 1.1 million b/d to 7.2 million b/d, 90% of 2019 levels.
World oil supply held largely steady in January at around 100.8 million b/d. The pause comes after a sharp 1.2 million b/d decline at end-2022 led by the US and Saudi Arabia. IEA expects global output to grow 1.2 million b/d in 2023, driven by non-OPEC+. Supply from OPEC+ is projected to contract with Russia pressured by sanctions.
“Nearly a year on from Russia’s invasion of Ukraine, global oil markets are trading in relative calm. Oil prices are back to pre-war levels with the exception of diesel, though even these have drifted much lower from last summer’s historical highs. 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,” IEA said.
Russian oil exports rose to 8.2 million b/d in January ahead of the EU embargo and G7 price cap on refined products taking effect. Crude oil exports increased by nearly 300,000 b/d m-o-m, despite a further 450,000 b/d decline in shipments to the EU. Product loadings held steady at around 3.1 million b/d. Export revenues are estimated at $13 billion, marginally higher than in December but down 36% on a year ago.
“Russian oil production and exports have held up relatively well despite sanctions. The country has managed to reroute shipments of crude to Asia and the G7 price cap on crude appears to be helping to keep the barrels flowing. In January, output was down only 160,000 b/d from pre-war levels, with a lofty 8.2 million b/d of oil shipped to markets,” IEA said.
Russian Deputy Prime Minister Alexander Novak said in early February that Russia would curb output by 500,000 b/d in March rather than sell to countries that comply with the G7 price caps. This could be a sign that Moscow may be struggling to place all of its barrels or it may just be an attempt to shore up oil prices, IEA noted.
“In January, Moscow was forced to sell exports at a large discount. Their 2023 budget is based on an Urals price of $70.1/bbl, but the grade’s export price averaged just $49.48/bbl in January versus $82/bbl for North Sea Dated. As a result, Russia’s fiscal revenues from oil operations plunged 48% y-o-y in January to $4.2 billion, while export revenues dropped 36% to $13 billion,” IEA said.
Meantime, according to the IEA report, global refinery throughputs fell 730,000 b/d in January, with US activity still recovering from outages during the Arctic freeze. A further decline is expected in February on scheduled maintenance. Despite mild weather in Europe and a seasonal slowdown in road demand, product cracks rallied on supply concerns in the US and ahead of the EU embargo on Russian products coming into force.
“The impact on Russia’s product exports following the EU embargo and price cap that came into effect on 5 February will be a key factor when it comes to meeting that demand growth. So will Beijing’s stance on domestic refinery activity and product exports amid its reopening. New refineries in Africa and the Middle East as well as China are expected to step in to cater for the growth in refined product demand. If the price cap on products is half as successful as the crude cap, product markets may well weather the storm – but more crude supplies would be required to prevent renewed stock draws later in the year,” IEA said.
Global observed oil inventories tumbled by 69.8 million bbl m-o-m in December, but were 40.5 million bbl higher than a year ago and 126 million bbl above the low reached in March 2022. OECD industry stocks fell by 18.1 million bbl in December to 2.77 billion bbl, 95.7 million bbl below the 5-year average. Preliminary data for the US, Europe, and Japan show a build of 28 million bbl in January, led by US crude and gasoline stocks.
North Sea Dated rose by $2.5/bbl m-o-m to $82.86/bbl in January, its first monthly increase since October, as economic sentiment marginally improved following China’s reopening. Forward curves and physical differentials were largely stable, except for in the US where refinery outages propelled gasoline margins higher, while at the same time weighing on WTI prices. Freight rates fell across the board.
