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Oil prices to surge as markets poised to tip into deficit soon: IEA

Paris-based agency revised demand forecast upwards as China’s consumption soars

Published: Wed 17 May 2023, 2:20 PM

Updated: Wed 17 May 2023, 2:42 PM

By
Issac John

An oil well in the Permian Basin in Garden City, Texas. The US Strategic Petroleum Reserve has been drawn down to its lowest level since 1983— AFP

Global oil demand is set to rise by 2.2 million barrels per day (bpd) this year to a record 102 million bpd, on the back of a vibrant Chinese recovery at a pace exceeding expectations, the International Energy Agency (IEA) has said.

The Paris-based IEA noted that global oil markets will tip into deficit in the second half of 2023, causing prices to rise, as the Organisation of Petroleum Exporting Countries and its partners (Opec+), implement a new round of production curbs.

The IEA, in its Oil Market Report, revised its demand forecast upwards by 200,000 bpd as China’s demand hit a record. In last month’s report, the IEA expected the world to see record demand for oil this year, but pegged the growth at 2.0 million bpd in 2023 compared to last year.

The agency noted that China set an all-time record for its oil consumption in March 2023 at 16 million bpd. “Chinese demand for oil broke new ground in March, vaulting to the highest mark ever recorded,” the IEA said, and while there has been a recent slowdown, “the vast majority of the projected demand recovery is already in train.”

However, despite the brighter demand outlook, oil futures dipped as weaker-than-expected economic data in the United States offset a forecast.

On Wednesday, prices fell for the second day after a surprise rise in US crude inventories stoked demand concerns on the heels of weaker-than-expected US economic data. US crude stockpiles rose by about 3.6 million barrels in the week ended May 12, according to market sources, citing American Petroleum Institute figures. Brent crude futures was 29 cents lower — down by 0.4 per cent — to $74.60 a barrel, while US West Texas Intermediate crude edged down by 32 cents, also 0.4 per cent, to $70.55, as of 0005 GMT, Reuters reported.

Global oil inventories declined in March, also setting the stage for a tighter market later in 2023. Those inventories fell 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 massive decline of 56 million barrels in the OECD, IEA said.

The agency calculated that Russian shipments of crude and refined oils reached a post-invasion high of 8.3 million barrels a day in April.

According to oil market data, the crude market had received a boost earlier in the session with the confirmation that the US plans to refill its heavily-depleted strategic reserves.

Adding to the bullish demand outlook is the move by the US Department of Energy to buy 3.0 million barrels of crude oil for the Strategic Petroleum Reserve for delivery in August. The SPR has been drawn down to its lowest level since 1983 after President Joe Biden's administration last year conducted the largest-ever sale from the emergency stockpile of 180 million barrels, as part of a strategy to stabilise soaring oil markets and combat high pump prices in the aftermath of Russia's invasion of Ukraine.