By Nicholas Earl
Global oil demand will boom later this year from resurgent air travel and China’s economic reopening after Covid-19 curbs, the International Energy Agency (IEA) has argued in a highly bullish market report.
“Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang,” the Paris-based agency said in its monthly oil review.
It argued rebounding jet fuel use and a resurgent China will see an overall first and fourth quarter ramp-up of 3.2m barrels per day (bpd), the largest relative in-year increase since 2010.
The IEA recognised high inflation and investor concerns over high interest rates currently plague the economic outlook and could pose a risk to fuel demand.
It also acknowledged concerns over the health of the US banking sector carried potential downside risks for oil demand.
However, the agency has maintained its positive forecasts for Chinese and global demand relatively steady from the previous month, at 16m bpd and 102m bpd, respectively.
The IEA predicts the market will balance oil demand and supply by the middle of the year, with China and developing countries driving consumption later in the year – even if oil supply is currently outstripping slow demand.
Commenting on early signs of rising demand, the IEA said: “Real-time indicators for Chinese mobility mostly stabilised after January’s remarkable bounce, led by air traffic with domestic flights now well above pre-pandemic levels.”
Craig Erlam, senior market analyst at Oanda, argued the IEA’s predictions reflected the essential role of China in propping up demand.
He told City A.M.: “One thing that is clear from all of these reports is that China remains a significant source of stronger demand growth but against the backdrop of immense global economic uncertainty. And that’s before this week’s events are taken into consideration.
“Demand is still expected to improve over the course of the year, at this point in time, which should address current oversupply. I expect these forecasts will be subject to significant revision over the coming months, particularly in light of recent events.”
This matches OPEC’s forecast that Chinese demand could bolster the oil market over the year, even as crude prices tumble following the collapse of Silicon Valley Bank.
Oil prices have dipped over two per cent in today’s trading amid continued caution from investors, with Brent Crude and WTI Crude trading at $75.31 per barrel and $69.22 per barrel respectively.
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