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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The 2023 Oil Demand Conundrum

  • IEA: oil demand will grow by a substantial 2.2 million bpd this year.
  • Oil prices remain stubbornly low despite this upbeat demand outlook.
  • Traders continue to focus on short-term demand data rather than the more bullish demand/supply balance for later this year.

In its latest Oil Market Report, the International Energy Agency forecast that global oil demand would hit 102 million barrels daily, driven by China, whose oil demand, according to the IEA, reached 16 million bpd two months ago.

According to the IEA, oil demand will grow by a substantial 2.2 million bpd this year.

A week ago, in its latest Monthly Oil Market Report, OPEC left its global oil demand growth forecast unchanged but revised its expectations of Chinese demand upwards: the cartel now expects it to grow by 800,000 bpd, up from an earlier forecast of 760,000 bpd.

Meanwhile, oil prices remain stubbornly low despite this upbeat demand outlook. In fact, prices took a dip on the same day that the IEA released its report, which is unequivocally bullish. Why? Because data coming out of China showed that industrial activity and retail sales growth were weaker in April than forecast.

There appears to be a major split between forecasts and actual data, and traders are following the latter, which is affecting oil prices heavily. The problem with that is that if the IEA and OPEC are right, and supply tightens later this year, the shock would be that much more powerful.

“World oil demand is forecast to rise by 2.2 mb/d year-on-year in 2023 to an average 102 mb/d, 200 kb/d above last month’s Report,” the IEA wrote in the May edition of its OMR. Related: Goldman Sachs: Oil Markets To Face Supply Crisis In 2024

“China’s demand recovery continues to surpass expectations, with the country setting an all-time record in March at 16 mb/d,” the agency noted.

On the same day, oil prices fell because China’s industrial activity increased by 5.6% in April, when a poll of economists conducted by Reuters had shown expected growth of 10.9%. That 5.6%, by the way, was a solid increase on the March industrial activity growth rate, which stood at 3.9%.

According to the hard data, then, China’s industrial activity is gaining speed. According to economists, it is not moving fast enough because we have all gotten used to double-digit growth from China, and anything else is interpreted as weak.

“Chinese data on demand appears potentially misleading, with mobility data reflecting a freedom and desire to travel around the Labor Day holiday, but accompanied by weaker manufacturing and industrial activity, and faltering annual GDP growth quarter after quarter following an initial re-opening surge.”

The above is a quote from Citi’s head of commodity research, Edward Morse, reinforcing the picture of a China that is recovering from the pandemic more slowly than hoped for.

Yet at the same time, oil imports are on the rise in that same China that everyone looks to when it comes to oil demand. In fact, this year, China became the world’s largest importer of crude oil, accounting for 22.4% of the global total.

In March, China’s oil imports soared by 22.5% from last year to reach the highest since June 2020, Reuters reported in April, even though a month later, the growth slowed down as refinery maintenance season began.

It would be eccentric to expect a steady and unwavering oil import growth from China just as it would be eccentric to expect a steady and unwavering economic growth from the global powerhouse. Yet it seems that a lot of people are being eccentric, and that is muting the risk of an oil supply shortage in the eyes of traders.

That could be dangerous because it could lead to sharp price surges—sharper than they would be otherwise—should the significance of economic data as opposed to forecasts manage to sink in at some point.

The data suggests that the world’s demand for oil is growing. The world’s supply of oil is also growing but at a much lower rate because of both conscious decisions, such as OPEC+’s latest cuts, and outages, such as the ones in Kurdistan and Alberta.

China is the single individual driver for oil prices with its demand and everything that can affect it. The IEA has recognized the country’s demand growth, but the oil market prefers to follow forecasters who, for reasons of their own, might present a warped picture of reality.

Meanwhile, drilling activity in the United States marked the sharpest decline since June 2020 last week, but nobody registered that because they were too busy awaiting industrial activity data from China so they could sell some more oil. The fact that just because reality does not live up to expectations doesn’t mean it does not matter, might play a bad joke on bears later this year.


On the other hand, there is also inflation to consider. With no clear signs of abatement in that department, demand for oil outside China and Asia could remain muted, contributing to a more balanced market and a lower risk of sharp price jumps.

Should inflation continue rising in places like the European Union, for instance, demand for oil might even decline, although any decline would be limited because of oil’s vital role in any economy.

If demand turns out the way the IEA expects it, however, all those analysts arguing oil could reach $100 per barrel before this year’s end may turn out to have been right.

By Irina Slav from Oilprice.com

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Leave a comment
  • Paul Harmston on May 19 2023 said:
    People are ignoring, for some reason, distilled exports from China. The CCP openly told refineries to produce and sell as much as possible. The sel to others 4 million bad of just diesel
    They are not buying record a.ounts of Russian and Iranian oil to use, but to make money off their low cost of crude oil.
    China is still in the business ofbussiness.

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