The International Energy Agency (IEA) says it predicts that demand for oil could reach record levels this year, given mainland China’s reopening of its economy.
Demand for crude fell in the second half of 2022, as China’s ruling Chinese Communist Party (CCP) maintained its “zero-COVID” policy stance.
The combination of mild weather and weaker industrial output, caused by natural gas shortages in the wake of widely-adopted energy sanctions placed on Russia, saw lower oil demand in Europe.
China’s draconian lockdown policies and powerful winter blizzards in the United States and Canada were other factors that softened the consumption of crude worldwide.
Beijing’s sudden policy U-turn took global markets by surprise, as the CCP rapidly reopened China in the wake of growing COVID-19 infections, mass factory worker protests, and an economic slowdown caused by its draconian lockdowns.
According to the energy agency, energy investors are now encouraged that the reopening could swiftly lead to a rebound in Chinese oil demand.
“China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain,” reported the IEA.
The IEA expects that an ease in movement restrictions and the resumption of industrial production in China could lead to a worldwide increase in energy consumption and cause oil demand in 2023 to hit a record high, it said in its report.
This year could see “oil demand rise by 1.9 mb/d to reach 101.7 mb/d, the highest ever, tightening the balances as Russian supply slows under the full impact of sanctions,” the IEA said.
IEA Warns China Projections Still Uncertain
Meanwhile, the IEA warned that the reopening of the Chinese economy could be uneven and haphazard, with future projections for oil consumption remaining uncertain.The IEA said that many Chinese consumers are experiencing financial hardship brought about by the years in lockdown, making an increase in spending less likely.
In the meantime, OPEC announced on Jan. 17 that it would hold off from making new adjustments to its oil consumption forecasts, after it said that China’s sudden reopening could cause a spike in global CCP-virus cases, which could delay a recovery in demand.
Europe, US Face Less Pessimistic Outlook
A less pessimistic economic outlook for Europe and the United States has improved oil-demand expectations, the IEA said.Europe’s economy is expected to fare better in 2023 than had been expected, as warmer winter temperatures lessened the severity of the energy supply crisis. But the newly positive signs are not exactly beneficial for oil demand.
High natural gas prices and reduced gas supplies from Russia led to a boost in European orders for crude-related heating sources to compensate for the loss of gas in 2022, causing the Paris-based energy agency to raise its demand forecasts in Europe, due to the expectation of higher need.
However, the IEA’s latest figures instead saw a reduction its oil demand projections for Europe in 2023, after consumption was 200,000 barrels a day less than expected in December, due to the milder than expected weather.
This led to fewer European utilities making the switch from natural gas to oil last month, causing the IEA to leave its average estimate for oil demand in 2022 the same, at 99.9 million barrels a day.
Furthermore, the American economy had seen an ease in inflation growth late last year, while consumer consumption remained strong, despite ongoing price pressures.
The gradual recovery of international air travel post-pandemic is expected to lead to higher demand for jet fuel, which accounts for about 50 percent of the total projected increase in oil demand this year, the IEA reported.
Demand for aviation fuels are expected to rise by 850,000 barrels a day in 2023, surpassing the boost in 2022, Dow Jones reported.
