OPEC sees improved Chinese oil demand more than offset by resilient Russian output

With Russian oil output proving resilient to sanctions, OPEC downgraded its estimate of how much crude it will need to pump to balance the market, despite increasing its forecast for Chinese demand.

At its current production rate, more OPEC crude will not be required until the second half of the year, the secretariat said in an oil market outlook published March 14, with volumes from outside the bloc expected to rise more than previously thought.

OPEC said it now saw Russian liquids production falling 750,000 b/d year on year, less than the 900,000 b/d drop anticipated in its February report, largely on the back of higher than expected Q1 volumes.

That mostly accounted for OPEC's upward revision to its 2023 non-OPEC supply forecast to 67.20 million b/d.

But even with China's oil demand now expected to rise 710,000 b/d for 2023, up from the 590,000 b/d forecast in February, OPEC kept its estimate of overall global consumption essentially unchanged at 101.90 million b/d, due to weaknesses emerging in some western economies.

The group said the rapidly changing economic conditions continued to warrant a cautious approach to managing oil production volumes.

OPEC pumped 28.91 million b/d in February, according to secondary sources used by the secretariat to monitor output, almost 300,000 b/d above the so-called "call on OPEC" in the second quarter. The call then rises significantly in the second half of the year to average 29.26 million b/d for the full year, which is still a downward revision of 160,000 b/d from the February estimate.

OPEC has allied with Russia and several other key oil producers on a series of output cuts, the latest of which are scheduled to last through the end of 2023. The OPEC+ coalition's nine-country ministerial monitoring committee, co-chaired by Saudi Arabia and Russia, next convenes April 3.

"Given the ongoing high level of uncertainty with regard to the timing and extent of a full global economic recovery to pre-pandemic levels in all sectors, the OPEC and non-OPEC countries participating in the [Declaration of Cooperation] continue to carefully monitor market developments and address challenges in order to ensure sustainable market stability for the benefit of the global economy," the report stated, referring to the alliance.

Tumbling prices

The market report came as crude prices have tumbled while US officials seek to stabilize a financial system hit by the collapse of Silicon Valley Bank, which has triggered fears of another banking crisis.

Front-month Brent futures, which had breached $86/b just days earlier, were trading at $79.09/b as of 1333 GMT, their lowest since early January.

OPEC producers have been hoping for a robust Chinese economic reopening from its strict COVID-19 restrictions to boost oil demand, and signs of such green shoots were promising. The report projected that non-OECD oil demand has already surpassed pre-pandemic levels, as the travel and transportation sectors recover, while OECD demand will fall just slightly short.

But western sanctions targeting Moscow have so far kept most Russian oil export volumes intact beyond most market expectations, while clamping down on its revenues.

OPEC forecast global economic growth of 2.6% for 2023 -- which it said was still healthy despite a slowdown from growth of 3.2% in 2022, considering the many headwinds the world is facing, including rampant inflation in many countries and central bank interest rate hikes.

"A stable global oil market, sustained by the successful efforts of the countries participating in the Declaration of Cooperation, will provide consumer nations with ample oil supply to fuel global economic growth," OPEC said.

OPEC market forecasts

Unit: million b/d

Source: OPEC monthly oil market report