China, stronger economies to drive global oil demand growth in 2023, 2024: US EIA

The end of pandemic-related lockdowns in China is expected to spur travel and drive growth in global oil demand in 2023, while a brighter economic picture across the world next year will attribute to continued oil demand growth in 2024, the US Energy Information Administration said March 7.

Liquid fuels consumption in China is forecast to be 700,000 b/d higher in 2023 compared with 2022, the agency said in its March Short-Term Energy Outlook. That growth is seen as the main driver of an expected 1.5 million b/d increase in global oil demand this year to 100.9 million b/d, a 430,000 b/d jump from last month's estimate.

The agency forecast oil demand in India to see a 200,000 b/d boost in 2023 and other non-Organization for Economic Cooperation and Development countries to account for another 500,000 b/d in growth. Higher consumption in non-OECD countries "counteracts almost no consumption growth among OECD countries in 2023" as inflation limits their GDP and oil demand growth, the EIA said.

But with global GDP growth expected to accelerate from 2% in 2023 to 3.2% in 2024, the EIA raised its global oil demand outlook for 2024 by 430,000 b/d as well to 102.69 million b/d, with non-OECD countries continuing to account for the bulk of increased fuel consumption.

Production uncertainty

The agency acknowledged, however, that China from a demand perspective and Russia on the production front remain sources of significant uncertainty.

For instance, while Russia announced a 500,000 b/d cut to its crude production, the country "has largely found alternate markets for petroleum exports despite sanctions," the EIA said in a statement. "EIA expects Russia to produce an average of 10.3 million b/d of crude oil in 2023, down from 10.9 million b/d in 2022 but about 400,000 b/d more than EIA forecast in February."

The agency also raised its 2024 Russian crude production expectations by 300,000 b/d from the prior month's estimate to 10.1 million b/d.

On the other hand, the EIA lowered its 2023 outlook for US oil production by 50,000 b/d to 12.44 million b/d though that estimate remains 4.7% higher than US oil output in 2022. The EIA expects output growth to continue into 2024 to put US crude production at 12.63 million b/d, a 20,000 b/d dip from last month's estimate.

Given the upward revisions to Russian oil output, global oil inventories that rose by 400,000 b/d last year are seen growing by an additional 600,000 b/d in 2023 and another 300,000 b/d in 2024, "putting downward pressure on oil prices later in 2023," the EIA said.

Prices continue decline

The EIA reduced its 2023 forecast for WTI crude by 74 cents to $77.10/b, dropping from the $94.19/b average seen in 2022. Similarly, the agency forecast Brent crude would average $82.95/b in 2023, down 68 cents from last month's estimate for the year and 18% below the $100.94/b average for 2022. The EIA expects WTI in 2024 at $71.57/b and Brent in 2024 at $77.57/b.

Retail gasoline prices are expected to average $3.36/gal this year, down 3 cents from the previous estimate. The EIA sees gasoline prices continuing to decline to an average of $3.11/gal in 2024.

The agency attributed the lower gasoline prices to falling crude oil prices as well as rising gasoline inventories.

The February to June period generally sees gasoline stocks take a hit due to the seasonal increase in gasoline demand, but this year the EIA expects increased refining activity to offset the bump in demand, "generating slight gasoline inventory builds and a small decline in gasoline crack spreads" -- the difference between the wholesale price of gasoline and the price of Brent crude oil.

"We forecast that US gasoline inventories will decrease by 9 million barrels in March because of postponed refinery maintenance," the agency said. "However, as refineries complete turnarounds, we expect inventories will end June with 10 million barrels more gasoline than at the end of March."

US distillate inventories are expected to stay below the five-year average in 2023 but see a slight increase from 2022 stock levels as refinery runs increase and US distillate fuel demand falls.

Russia's invasion of Ukraine and subsequent sanctions shifted trade flows, increased freight costs and increased demand for US diesel exports, lowering US diesel inventories and raising diesel prices globally. But going into 2024, more distillate supplies from markets outside of the US are expected to be available, including from the Middle East and China, the EIA said.

The agency expects this to limit growth in demand for US diesel exports and help ease prices. Retail diesel prices are forecast to fall to an average of $4.17/gal this year, down 6 cents from the prior estimate, and to ease further in 2024 to an average of $3.73/gal.