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Benchmarking: Forecasts See More Demand Than Supply in 2023

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  • Outlooks for oil consumption growth in 2023 assume a wide range - from 1 million barrels per day to 2.2 million b/d - with China playing the wild card.

  • Global liquids supply is equally difficult to gauge given Russia’s dilemma, and growth ranges from 750,000 b/d to 1.6 million b/d.

  • Balances for 2023 point to a draw from inventories, according to the latest reports by the four forecasters in this survey.

The macroeconomic environment has deflated demand forecasts for 2023 over recent months, so that as 2022 winds to a close the overall picture is clear that demand will grow, but the specifics are murky. China's Covid-19 policies can swing growth significantly.

Forecasting supply has proven to be equally challenging since global markets are facing an unprecedented conundrum: the world’s third largest producer and second largest oil products exporter, Russia, is encountering a massive campaign to either ban or restrict its flows of crude and products. This is weighing heavily on the supply outlook.

It follows that arriving at a global balance for 2023 is tricky, but the four forecasts in this survey currently agree that demand growth will outpace that of supply, and markets will need to tap oil inventories.

Demand Under Stress

The past four months have led to a drop in the forecast of oil consumption in 2023. Forecasts of slowing economic activity in the three main oil-consumption centers — the US, China and Europe — have affected the outlook considerably. If in September the average consensus for demand growth next year was 2.2 million barrels per day, this forecast has shrunk by 600,000 b/d to 1.6 million b/d in December.

The US Energy Information Agency (EIA) has made the biggest change and halved its demand growth outlook over the four months to 1 million b/d, with average consumption for the year at 100.8 million b/d. It now sees the US economy contracting during part of 2023.

Since September, the International Energy Agency (IEA) has reduced its forecast for consumption growth by 400,000 b/d to 1.7 million b/d, for total consumption of 101.6 million b/d. Opec’s downward adjustment was 500,000 b/d to 2.2 million b/d, with total demand coming to 101.8 million b/d.

Energy Intelligence was in the middle of consensus. Since September, we have reduced our demand growth outlook by 600,000 b/d to 1.5 million b/d. 2023 demand will now average 101.2 million b/d, according to our estimate.

As regards 2022, average consensus now sees demand growth of 2.2 million b/d. Energy Intelligence is at the low end of consensus as we see consumption having grown this year by only 1.9 million b/d to 99.6 million b/d.

Next Year's New Supply

The range of estimates for supply growth next year is 750,000 b/d-1.6 million b/d.

Energy Intelligence and Opec are the most bullish as regards supply gains in 2023. We are forecasting that supply will increase by 1.5 million b/d to 101 million b/d. And while Opec doesn’t estimate it's own production, in its latest monthly report the organization shows growth of non-Opec output, including countries such as Russia in the Opec-plus alliance, plus Opec’s natural gas liquids, at 1.6 million b/d.

The EIA is forecasting global liquids supply to grow by 1.1 million b/d to 101.1 million b/d, while at the low end of consensus is the IEA with a forecast growth of 800,000 b/d to 100.8 million b/d.

Consensus is forecasting a steep decline in Russian output next year. At the low end is Opec, which sees liquids production by Russia declining 850,000 b/d to 10.1 million b/d, while at the other end is the EIA and IEA, both which have penciled in a 1.4 million b/d fall.

Energy Intelligence is right near the latter two, as we have Russian liquids output dropping 1.35 million b/d in 2023 to 9.87 million b/d.

All agencies agree that Russian production is one of the most uncertain aspects of global oil markets next year, and estimates will be subject to revision.

Annual Balances

Consensus is unanimous as far as balances in 2023: there will be a draw for the year. At the high end is IEA, which has penciled in a net inventory decline of 800,000 b/d next year. The IEA bases its balance on the current Opec-plus agreement plus its assessment of member countries’ output capacity.

At the lower end is Energy Intelligence. We currently see a net draw of 200,000 b/d next year — the result of our bullish supply outlook, including the assumption that Opec will produce more than now agreed to limit price spikes.

The EIA’s balance for 2023 currently shows a net inventory decline of 310,000 b/d.

Opec’s latest report indicates that, if output by the 13 core members were to remain unchanged next year, then global markets would require a net draw of 630,000 b/d to balance. This is 370,000 b/d less than the shortfall the organization forecasted in its December report a year ago.

Regardless, the shortfall, in effect, impacts the call on crude production from Opec. The alliance’s policy on how to address this perceived imbalance will significantly impact oil markets next year.

Topics:
Oil Demand, Oil Supply, Opec-Plus Supply , Non-Opec Supply, Oil Inventories, Oil Forecasts
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