World oil demand will climb by 2 million b/d in 2023 to a record 101.9 million b/d, the International Energy Agency (IEA) said in its April issue Oil Market Report.
Oil demand growth is characterized by widening regional disparities, with the non-OECD accounting for 87% of the growth and China alone making up more than half the global increase, according to IEA. OECD demand, dragged down by weak industrial activity and warm weather, contracted by 390,000 b/d year-over-year (y-o-y) in first-quarter 2023, its second consecutive quarter of decline.
“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. In first-quarter 2023, OECD oil demand fell 390,000 b/d y-o-y, but a solid Chinese rebound lifted global oil demand 810,000 b/d above year-earlier levels to 100.4 million b/d. A much stronger increase of 2.7 million b/d is expected through year-end, propelled by a continued recovery in China and international travel,” IEA said.
By product categories, jet/kerosene accounts for 57% of 2023 gains. “The apparent weakness in industrial activity is impacting gasoil demand, whereas the services sector and personal consumption are driving gasoline and jet uptake,” IEA said.
Meanwhile, surprise OPEC+ production cuts announced on Apr. 2 are likely to exacerbate an expected oil supply deficit in second-half 2023 and push prices higher amid heightened economic uncertainty. The bloc’s self-described “precautionary move” immediately triggered a $7/bbl jump in North Sea Dated crude to $85/bbl, up nearly $15/bbl from March lows.
The latest OPEC+ voluntary curbs of 1.16 million b/d also come on top of an announced 500,000 b/d cut in Russian output from March that has now been extended through the rest of the year, and a 2 million b/d reduction in targets taking effect last November.
“While apparently a move to support declining prices amid financial turmoil in mid-March, rising global oil stocks may have also contributed to the decision,” IEA said.
According to IEA data, OECD industry stocks surged by 53 million bbl in January to 2,830 million bbl, the highest since July 2021 and only 47 million bbl below the 5-year average. Preliminary data for February show further builds, albeit at a much slower pace. By March, however, the trend was already turning, with OECD industry stocks plunging by 39 million bbl – their biggest monthly decline in over a year.
Overall, meeting expected demand growth could be challenging, as new OPEC+ production cuts could reduce production by 1.4 million b/d from March to year-end, more than offsetting a 1 million b/d increase in non-OPEC+ output. Growth from US shale fields, traditionally the most price-sensitive source of more production, is currently constrained by supply chain bottlenecks and rising costs.
“Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge. The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices, especially in emerging and developing economies,” IEA said.