Global oil demand to reach record high this year, IEA says

Unsplash/Marios Gkortsilas

• China to account for half of the gain, says International Energy Agency
• Oil prices to rise further as Asian superpower relaxes Covid restrictions
• Crude up nearly 1% on Wednesday, rallying to $86.60 per barrel

Global oil demand is forecast to hit an all-time high in 2023 as China relaxes its Covid restrictions, potentially pushing up prices in the second half of this year, according to the latest report from the International Energy Agency (IEA). 

The IEA said global oil demand is set to rise by 1.9 million barrels per day (mb/d) to reach 101.7mb/d, with nearly half the gain from China following the lifting of its Covid restrictions in December.

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“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the report published today said.

“This year could see oil demand rise by 1.9mb/d to reach 101.7mb/d, the highest ever, tightening the balances as Russian supply slows under the full impact of sanctions.

“China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain,” it said.

Russian oil exports plummeted by 200 thousand barrels per day month-on-month in December to 7.8mb/d following the EU crude embargo and after a G7 price cap came into effect on 5 December. However, since then, exports from Russia partially rebounded and “held steady” for the full month of December at 11.2mb/d. 

However, the IEA warned that the “well-supplied” global oil market at the start of this year could “quickly tighten” as western sanctions on Russia, including a ban on the import of refined Russian oil from 5 February, take effect. 

Product markets, especially diesel, are most at risk, just as demand growth recovers, the Paris-based organisation said. Russia exported a record 1.2mb/d of diesel in December, with 60% headed for the EU. 

“Fresh supplies from new plants in the Middle East and from China will provide welcome relief,” the IEA noted, adding that Chinese diesel is already arriving in Europe after Beijing raised export quotas in late 2022.

Overall, jet fuel remains the largest source of global growth demand this year, up 840 thousand barrels per day (kb/d). OECD oil demand slumped by 900kb/d in the fourth quarter last year on the back of weak industrial activity, while non-OECD demand was up 500kb/d, the IEA said. 

Oil prices had continued to rise on Wednesday morning, by around 1 percent from Tuesday. The international benchmark Brent Crude was up to above $87, the strongest since early December on the back of news of China’s reopening.