By Nicholas Earl
Chinese demand could bolster the oil market over the year, even as crude prices tumble following the collapse of Silicon Valley Bank, which has made investors cautious.
According to the latest monthly report from OPEC, world oil demand in 2023 will rise by 2.32 million barrels per day (bpd) – around 2.3 per cent – which is unchanged from its February forecast.
Last month, its projects for crude output rose 117,000 bpd to 28.92m bpd
The world’s largest oil cartel has now raised its forecast for Chinese oil demand growth in 2023 due to the relaxation of the country’s zero-Covid approach.
“China’s reopening, following the lifting of the strict zero-COVID-19 policy, will add considerable momentum to global economic growth,” OPEC said in the report.
Overall, it expects Chinese oil demand to grow by 710,000 bpd in 2023, up from last month’s forecast of 590,000, although the global total was steady due to downward revisions in Western markets.
OPEC flagged potential downside risks for the world economy from rising interest rates.
The oil body said: “The rapid rises in interest rates and global debt levels could cause significant negative spill-over effects, and may negatively impact the global growth dynamic.”
Oil prices tumble after US bank debacle
Oil prices have slipped across both major benchmarks, with Brent Crude dropping 1.45 per cent to $79.60 barrel in this morning’s trading, while WTI Crude fell 1.8 per cent to $73.45 per barrel over the same period.
This comes amid continued uncertainty from investors following the collapse of Silicon Valley Bank, alongside gloomy economic data across developed economies.
Ole Hansen, head of commodity strategy argued that prices were being weighed down by macro-factors, rather than fundamentals.
He said: “Crude oil and other growth and demand dependent commodities from copper to cotton have all suffered a setback in response to the current banking crisis and the risk its impact will speed up recession risks.
“It is however also worth noting that oil fundamentals have yet to show any deterioration with Brent still commanding a solid backwardation at the front end of the curve while a long-established contango in WTI has not widened either. Both highlighting a fact that the current weakness is being driven by speculators reducing bullish China growth related bets.”
One of the fundamentals which would power prices over time was a potential supply with production not keeping up with demand.
This was exacerbated by OPEC’s production shortfalls since the pandemic, with the cartel and its allies in OPEC+ failing to meet even most modest pledges to raise output – a source of constant friction between the West and Saudi Arabia.
He said: “In terms of supply, the OPEC group is likely to do nothing unless Brent tumbles further, and in the process break out of the range that has been in play since late November. Additional barrels on the other hand is unlikely to be added unless the price returns to 100 dollar.”
Callum Macpherson, head of commodities at Investec, told City A.M. yesterday he remained bullish over prices.
“The spot market tends to be dominated by what is happening now in the physical market, and what is going on in other markets – the sentiments. At the moment, the market is fairly well supplied, but the forward outlook is that the market is going to tighten,” he explained.
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