The lifting of COVID-19 restrictions in China is set to boost global oil demand this year to a new record high, the International Energy Agency (IEA) said on Wednesday, while price cap sanctions on Russia could dent supply.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the Paris-based energy watchdog said in its monthly oil report.
“Russian supply slows under the full impact of sanctions (while) China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain.”
Weak industrial activity and mild weather helped cut oil demand by nearly a million barrels per day in the OECD developed countries in the last quarter of 2022.
But despite possible but likely mild recessions in Europe and the United States, China’s expected reopening is set to fuel rebounds in nearby Asian economies and see it take the lead from India as the world’s leader in oil demand growth.
“The preeminent driver of 2023 GDP and oil demand growth will be the timing and pace of China’s post-lockdown recovery,” the IEA said.
Meanwhile the main growth in oil supply is set to come from the United States as output from the OPEC+ producer group will decline by 870,000 barrels per day (bpd), led by Russia.
Russian oil output was dented by only 200,000 barrels per day (bpd) in December after the European Union banned imports of its seaborne crude and a coalition of countries imposed a price cap on its crude, the IEA said.
That was around double what the IEA had predicted in its last report and the agency originally foresaw 3 million bpd being shut in after Moscow’s invasion of Ukraine.
Russia’s oil exports increased by just under 5% last year, the IEA said on Wednesday, though prices were far lower.