IEA raises 2023 world oil demand growth forecast on Chinese travel revival

Global oil demand is set to expand faster than expected this year to reach 102 million b/d, with the most recent Chinese mobility data showing the country's economy continues to rebound from pandemic lows, the International Energy Agency said May 16.

The IEA now expects global oil demand to grow by 2.2 million b/d year on year in 2023, some 200,000 b/d higher than last month's report, to 102 million b/d, it said in its latest monthly oil market report.

China's road and air mobility recovery in March pushed up its oil demand by 450,000 b/d month on month to a new record of 16 million b/d, the IEA said. Following revisions to the historical baseline, the IEA estimates that China's annual demand is now set to average 16 million b/d in 2023, up by 1.3 million b/d on the year.

"China's demand recovery continues to surpass expectations, with the country setting an all-time record in March at 16 million b/d," the IEA said. "With China's rebound even stronger than previously expected, the world's second-biggest oil user after the US will account for nearly 60% of global growth in 2023."

Referring to a "two-speed recovery", the IEA said China's weak industrial activity but more robust personal mobility was fueling the widening gap between developments in gasoil and gasoline demand.

By contrast, the IEA noted that oil demand in the OECD contracted by an estimated 310,000 b/d in the first quarter of the year, the second quarterly decline in a row. OECD oil demand growth is expected to return to growth in the current quarter, however, ending the year 350,000 b/d higher on average.

Last week, OPEC left its global oil demand projections largely unchanged, forecasting demand growth of 2.3 million b/d in 2023. Oil analysts at S&P Global Commodity Insights last forecast global demand growth of 2.1 million b/d for 2023 as China's recovery is tempered by ongoing weakness in the US data.

In April, the IEA warned that further planned OPEC+ output cuts this year together with China's economic rebound meant the world oil market could be undersupplied by up to 2 million b/d in the second half of 2023. The IEA's latest revisions to its oil demand and supply estimates this year leave the oil market balance outlook little changed with a potential supply shortfall of 2 million b/d by year-end.

Russian supplies

On the supply side, the IEA estimated that world oil supply in April fell by 230,000 b/d to 101.1 million b/d after sharp losses in Iraq, Nigeria and Brazil were tempered by seasonally higher biofuels and modest increases elsewhere.

The IEA noted that Russian oil exports reached a post-invasion high of 8.3 million b/d in April, suggesting that Russia is raising exports to help offset the lower market value of its crude.

"By our estimates, Moscow did not deliver its announced 500,000 b/d supply cut in full. Indeed, Russia may be boosting volumes to make up for lost revenue," the IEA said.

Looking ahead, the IEA said steeper supply losses are in store for May as wildfires shut in Canadian production and extra cuts from some OPEC+ producers take effect. From April through December, the IEA estimates that OPEC+ oil supply is set to fall by 850,000 b/d, while non-OPEC+ rises by 710,000 b/d.

Oil stocks

The IEA estimated that global oil inventories declined by 7.9 million barrels in March as a surge in oil on water and a slight increase in non-OECD stocks failed to offset a large decline in the OECD.

OECD industry stocks "plunged" by 56.3 million barrels in March to a six-month low of 2.75 billion barrels, the IEA estimates, led by a sharp draw in product stocks.

"The release of record volumes from IEA government stocks over the past year has reduced the industry inventory deficit versus its five-year average to less than 90 million barrels from more than 300 million barrels a year ago," the IEA said.

Total OECD oil stocks slumped by 55.6 million barrels to 3.98 billion barrels, their lowest since 2004 and 397 million barrels below the five-year average.

Preliminary data for April shows a marginal decline, with stock builds in on-land inventories and a draw in oil on water, the IEA said.

"Those builds may help mitigate price volatility in the coming months if supply falls short of the seasonal rise in world oil demand," the IEA said.