The International Energy Agency (IEA) has predicted that oil demand could reach record levels this year given the resumption of economic activity in mainland China.
Oil demand declined in the second half of 2022 as China’s ruling party, the Communist Party of China (CCP), maintained its “no coronavirus” policy stance.
The combination of warmer weather and sluggish industrial production caused by natural gas shortages as a result of the widespread adoption of energy sanctions against Russia has reduced oil demand in Europe.
China’s strict lockdown policy and powerful winter blizzards in the US and Canada were other factors that softened global oil consumption.
However, according to the Oil Market Report (OMR), the IEA has boosted oil demand forecasts on a somewhat improved economic outlook, coupled with a “faster-than-expected resumption of China” and lower oil prices. It was published January 8th.
Beijing’s sudden policy U-turn stuns global markets as the Chinese Communist Party rapidly reopens China after an economic slowdown due to the spread of COVID-19 infections, massive factory worker protests and strict lockdowns. I was.
Energy investors are encouraging the reopening could quickly lead to a recovery in China’s oil demand, according to the Energy Agency.
“China will drive nearly half of this global demand growth, although the shape and pace of reopening remains uncertain,” the IEA reports.
The IEA said in a report that easing travel restrictions and resuming industrial production in China could boost global energy consumption, pushing oil demand to a record high in 2023.
The IEA said oil demand could rise 1.9 mb/d this year to a record high of 101.7 mb/d, with the balance likely to tighten as Russian supplies slow under the full impact of sanctions. Stated.
The projected increase in daily oil consumption in 2023 will surpass pre-pandemic levels and reach an all-time high. This change is primarily due to the expected increase in demand in China. Officials raised their Chinese demand forecast by 100,000 barrels per day to a record 15.9 million barrels per day, according to Dow Jones Newswires.
IEA Warns China Forecast Still Uncertain
Meanwhile, the IEA warned that the restart of China’s economy could be spotty and haphazard, leaving future projections for oil consumption uncertain.
The Energy Agency has pointed to a “massive underreporting” of CCP virus cases in China and a weakening economy, with oil demand dependent on rising household consumption in China.
The IEA says many Chinese consumers are experiencing economic hardships brought on by years of lockdowns and are unlikely to spend more.
“Therefore, difficulties and turmoil appear to prevail in the near future. Its exit road will undoubtedly be bumpy and long as China faces a difficult winter,” the agency said.
Meanwhile, OPEC announced a new adjustment to its oil consumption forecast on Jan. 17 after saying China’s sudden reopening could trigger a surge in global CCP virus cases and delay the recovery of demand. announced it would be put on hold. .
The pessimistic outlook for Europe and the US recedes
A less pessimistic outlook for the European and US economies has improved the outlook for oil demand, the IEA said.
The European economy is expected to perform better than expected in 2023 as warmer winter temperatures ease the severity of the energy supply crisis. But new positive signs are not necessarily beneficial for oil demand.
Rising natural gas prices and reduced gas supplies from Russia have increased European orders for crude oil-related heat sources to make up for gas losses in 2022. Expectations for higher needs.
However, the IEA’s latest figures have lowered its 2023 European oil demand forecast. This is because December consumption was 200,000 barrels per day less than expected due to milder than expected weather.
That led to fewer European utilities switching from natural gas to oil last month, and the IEA left its average estimate of oil demand in 2022 unchanged at 99.9 million barrels per day.
In addition, consumer spending remained strong despite slowing inflation growth in the US economy at the end of last year and continued price pressure.
A modest recovery in international air travel after the pandemic is expected to lead to increased demand for jet fuel, which will account for about 50% of the total projected increase in oil demand this year, the IEA reported.
Demand for aviation fuel is expected to grow by 850,000 barrels per day in 2023, outpacing the increase in 2022, reports Dow Jones.