World oil demand to hit fresh highs in 2023 as China rebounds: IEA

The International Energy Agency March 15 raised its estimate for global oil demand in 2023 by another 100,000 b/d as rebounding air traffic and pent-up Chinese demand push consumption to record highs.

In its latest monthly oil market report, the Paris-based energy watchdog said it now sees global oil demand averaging 102.02 million b/d in 2023, 2 million b/d higher than in 2022.

The gains will accelerate over the year, however, rising to 2.6 million b/d year on year in the fourth quarter, from just 710,000 b/d in the current quarter, the IEA estimates.

"Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang," the IEA said ".... Rebounding jet fuel use and a resurgent China will see an overall Q1-Q4 ramp-up of 3.2 million b/d, the largest relative in-year increase since 2010 with oil use surging to 103.2 million b/d in second-half 2023."

The IEA said the global economic outlook has benefitted from China's economic momentum, with rebounding February Purchasing Managers' Index data and robust air traffic demand. Chinese mobility mostly stabilized after January's "remarkable bounce", the IEA said, adding that Chinese air traffic with domestic flights is now well above prepandemic levels. As a result, the IEA raised its estimate for Chinese jet/kerosene demand by 60,000 b/d.

Globally, the IEA said its Q4 2023 forecast for jet/kerosene demand is now at 94% of Q4 2019 levels, representing a 7.5 million b/d year-on-year growth.

"This assumes that by the end of 2023, the rebound in air travel will have largely run its course, with organic growth in non-OECD economies lifting overall passenger numbers further beyond 2019 levels," the IEA said.

Market balance

The report comes a day after OPEC kept its own 2023 global oil demand estimate largely unchanged at 101.90 million b/d, blaming weaknesses emerging in some western economies offsetting expected Chinese growth of 710,000 b/d.

Under the IEA's outlook, the market balance looks set to flip into a supply deficit during the second half of the year as global oil demand rebounds with stock draws of over 1 million b/d.

"Global demand is set to surge by 3.2 million b/d from Q1 2023 to Q4 2023, taking average growth for the year to 2 million b/d. Matching that increase would be a challenge even if Russia were able to maintain production at prewar levels." the IEA said.

S&P Global Commodity Insights oil analysts expect to see global oil stock draws average 1.4 million b/d in H2 2023, putting pressing on prices as demand outstrips supply.

The North Sea physical crude benchmark Dated Brent is expected to rise over the coming months to an average of $90/b in September before easing again in 2024, according to S&P Global analysts.

Platts, part of S&P Global, assessed Dated Brent at an average of $82.49/b in February, down $0.29/b on the month.

Supply growth

Despite solid Asian demand growth, the IEA said that the oil markets have been in surplus for three straight quarters, helped by resilient Russian export volumes.

Looking ahead, the IEA raised its supply growth estimate for the year by 300,000 b/d to 66.9 million b/d, with the increase led by the US, Brazil, Norway, Canada and Guyana.

Global oil supply jumped 830,000 b/d in February, the IEA said, as the US and Canada rebounded strongly from winter storms and other outages. For the year, the IEA expects world oil production to grow 1.6 million b/d, with the US and Brazil dominating growth.

Confirming data trends reported earlier by S&P Global, the IEA said Russia has rerouted most of the barrels previously destined for the EU and US to new outlets in Asia, Africa and the Middle East. Oil product exports fell on the month in February, according to tanker tracking data, while crude exports remained little changed.

The IEA estimates that Russia earned $11.6 billion from total oil sales of 7.5 million b/d in February, a fall of 500,000 b/d and revenues of $14.3 billion in January. Before the Ukraine war, Russian oil revenues were almost $20 billion in January 2022.

Given Russia's resilient supply despite sanctions, the IEA raised its forecast for Russian oil output by 300,000 b/d in 2023 and now expects average oil production of 10.4 million b/d in 2023, down 740,000 b/d year on year.

On stocks, the IEA said it saw a 52.9 million barrel surge in January push global inventories to nearly 7.8 billion barrels, their highest level since September 2021. It said preliminary indicators for February suggest further builds of 7.8 million barrels for the US, Europe and Japan.

"Building stocks today will ease tensions as the market swings into deficit during the second half of the year when China is expected to drive world oil demand to record levels," the IEA said.