Image Source: CNBC
2023 is poised to be a busy one in the oil markets as global demand is set to reach pre-pandemic levels amidst a wide variety of strong tailwinds for the sector. In a complete reversal of its longstanding Covid policy, China is set for a sudden reopening, which has caught the eye of the International Energy Agency (IEA), the intergovernmental organization that helps shape and forecast energy policy and consumption for nations around the globe. The recent shift in policy coming out of China has resulted in the IEA raising its forecast for demand by 200,000 barrels of oil a day, to 1.9 mb/d. The change in forecast results in a projection to record pre-pandemic demand level of 101.7 mb/d, with roughly one-half of the gains resulting from China’s lifting of its Covid restrictions.
The demand for jet fuel remains another driving factor of demand growth. The IEA’s projection for jet fuel demand increased by 840 kb/d, essentially eliminating the effects of a decrease in oil demand elsewhere due to the mild winter in Europe, along with weaker industrial activity.
The supply landscape of oil in 2023 is set to provide an interesting backdrop for the pricing of the commodity as demand rises to all-time highs amidst a dynamic geo-political environment that is continuously altering the price of the commodity. Just recently, an EU crude embargo combined with a G7 price cap resulted in Russian oil exports falling by 200 kb/d m-o-m in December to 7.8 mb/d, as crude shipments to the EU declined as a result. Globally, world oil supply growth in 2023 is set to slow to 1 mb/d following last year’s OPEC+-led growth of 4.7 mb/d. An overall non-OPEC+ rise of 1.9 mb/d will be offset by an OPEC+ drop of 870 kb/d due to expected declines in Russia, and the ongoing effects of the Ukraine war. The US looks poised to balance some of these decreases, as they once again ranked as the world’s leading source of supply growth, hitting an annual production record for a second straight year. Other countries hitting their own production records include Brazil, Canada and Guyana. In 2023, readers should keep their eyes on Chinese demand, Russian supply, energy efficiency gains, and the continued proliferation of electric vehicles as the main sources of price fluctuation in the industry.
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