China reopens: IEA raises global oil demand growth forecast to +1.9 mb/d
Crude oil prices were up last week. Despite a difficult economic backdrop with an increased risk of global recession, the prospect of a significant increase in Chinese oil demand following the easing of its Covid policy and the implementation of an embargo on Russian oil products in early February are raising fears of further oil supply tensions. On a weekly average, Brent and WTI are up by more than 4% to $85.8/b and $80.3/b respectively . The consensus of economists surveyed by Bloomberg on 20 January is for a lower median Brent price in 2023 of $87.5/b, but some institutions (including Goldman Sachs) are forecasting a bullish phase in crude oil prices around $110/b, considering that chronic underinvestment in the upstream oil industry coupled with the Russian oil embargo will not be able to meet the increase in global oil demand.
Online crude oil price: Brent and WTI market
Chinese oil demand drives global demand
For the main agencies (IEA, EIA, OPEC), the driver of global GDP growth and oil demand in 2023 will be the pace of recovery in Chinese demand - a variable, however, surrounded by considerable uncertainty due to the evolving health situation. In its latest report, the IEA estimates that global oil demand could increase by +1.9 mb/d to 101.7 mb/d in 2023. Almost half of this increase could come from China, with demand rising by +0.9 mb/d to 15.8 mb/d. Given the economic crisis, oil demand growth in OECD countries is not expected to exceed 0.5 mb/d (from 1.1 mb/d in 2022) to 55.3 mb/d
In China, it is in the transport sector that we are beginning to see this recovery with rising mobility indices in major cities and an increase in domestic flights. The government has also sharply increased oil import and export quotas, prompting refiners to restart their operations. This has resulted in an increase in crude imports, mainly from the Middle East (Iran and Saudi Arabia), with imports from Russia remaining stable at around 2.0 mb/d. On the other hand, according to several sources (Vortexa and Kpler), Iranian exports to China have increased sharply to 1.3 mb/d compared to 0.8 mb/d last September, as the United States seems to be less concerned about the strict application of the embargo on Iranian oil in the current context of global energy crisis.
View our full Crude Oil Market Report - Week of 23/01/2023.