July 22, 2022


Benchmarking: Demand, Supply Outlooks for 2023 Murky

  • Macroeconomic uncertainty has fed into divergent forecasts for oil consumption growth in 2023, which now range from a low of 1.2 million b/d to 2.7 million b/d.
  • The supply picture for 2023 is confused given the territory ahead: an embargo on Russian crude and oil products complicates forecasts for oil prices and demand.
  • Global balances among agencies surveyed in this study show a modest crude inventory build this year, though consensus is split on balances in 2023.

Recessionary fears have crystallized over the past month and filtered into forecasts through both sizable and marginal reductions in the demand outlook. Already this year consensus has reduced the demand for 2022 by an average 1.3 million barrels per day. And as advanced economies battle inflation and high energy prices, volatility has increased on oil markets, further confounding forecasts.

Created with Highcharts 9.0.0(million b/d)DEMAND GROWTH FORECASTS, 2022Energy IntelligenceIEAOpecEIADec'22Nov'22Oct'22Sep'22Aug'22Jul'22Jun'22May'22Apr'22Mar'22Feb'22Jan'22Dec'21Nov'21Oct'21Sep'21Aug'2112345Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO Apr'22 Opec: 3.67
Created with Highcharts 9.0.0(million b/d)DEMAND FORECASTS, 2022Energy IntelligenceIEAOpecEIAJul'22Jun'22May'22Apr'229698100102Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Wide Demand Range

For now, at least, consensus agrees that oil consumption will grow in both 2022 and 2023, and this winter could even see upside for oil consumption if natural gas prices are stratospheric and force plants in Europe and Asia to switch to petroleum fuels for power generation or industrial use.

Looking at 2023, Energy Intelligence is at the low end of consensus on consumption growth. We forecast demand will increase by an average 1.2 million b/d — compared to 1.9 million b/d this year — to 100.7 million b/d due to recession-triggered demand erosion that, having already begun in some quarters, is expected to accelerate in the months ahead.

In the middle of consensus are the International Energy Agency (IEA) and the US Energy Information Administration (EIA). The IEA is forecasting 2023 growth of 2.1 million b/d to 101.3 million b/d, while the EIA sees growth of 2 million b/d to 101.6 million b/d.

As usual, at the high end of growth forecasts is Opec. The organization estimates that oil consumption growth next year will be 2.7 million b/d, amounting to an average demand of 103 million b/d for the year.

For 2022, Opec in its July report kept demand growth at 3.4 million b/d to 100.3 million b/d, far ahead of consensus. It is, in fact, twice that of the IEA’s 2022 growth forecast of 1.7 million b/d.

Interestingly, the IEA is currently the only agency among those surveyed that sees 2023 demand growth outpacing that of 2022.

Russian Question

Gauging Russian production over the next year and a half is a difficult exercise given the size of the lost market in Europe when the EU embargo takes effect at the end of the year — still close to 2 million b/d in Russia crude and products have to find a new home after some 1 million b/d has already been diverted. Not all of the Russian exports might be absorbed by other buyers. And if calculating output by the world’s third largest producer is complicated, then by extension so is the entire supply outlook for 2023.

Energy Intelligence estimates that Russian liquids production next year will amount to 9.4 million b/d, down 1.2 million b/d year on year. The EIA is forecasting an even bigger decline of 1.5 million b/d to 9.3 million b/d, while the IEA is the gloomiest and sees liquids output tanking by nearly 1.9 million b/d next year to 8.7 million b/d.

Opec, by contrast, paints a relatively optimistic picture for Russia. It is forecasting that Opec-plus’ second-largest producer’s liquids output next year will fall by only 200,000 b/d — similar to this year’s decline — to 10.4 million b/d.

As a result, the emerging supply forecasts for global markets next year varies. Energy Intelligence stands apart from consensus in that we see 2 million b/d of additional liquids supply in 2023 — all of which, it is important to add, will come from non-Opec-plus.

The IEA has assessed global supplies next year at 101.1 million b/d, a gain of 1 million b/d on 2022, while the EIA’s forecast shows 1.2 million b/d of additional supplies for a total of 101.6 million b/d.

Opec does not forecast output by its own members, but the organization’s balance indicates that non-Opec producers will raise output by 1.7 million b/d. This means that, given the surge in demand growth next year, the call on Opec will be 940,000 b/d in order to balance markets in 2023.

Net Inventory Build

Consensus is divided as to how global oil markets stack up next year. The IEA’s balance for 2023 indicates a net draw of 200,000 b/d, while the EIA essentially sees global markets balanced.

Energy Intelligence, by contrast, is forecasting an inventory build of 350,000 b/d — the result of sluggish demand growth and a surge in non-Opec-plus supply.

As far as 2022, consensus has firmed around a net surplus for the year. The IEA’s balance shows a build of 900,000 b/d, and the EIA’s one of 750,000 b/d. Our own balance now points to a 350,000 b/d liquids surplus for the year thanks to sizable builds in the second and third quarters.

Created with Highcharts 9.0.0(million b/d)LATEST GLOBAL SURPLUS/DEFICIT ESTIMATESEnergy IntelligenceIEA*Opec†EIAQ1'21Q2'21Q3'21Q4'21Q1'22Q2'22Q3'22Q4'22-4-3-2-1012Q2'21 Energy Intelligence: -1.2

*Reflects latest Opec-plus deal and member countries' sustainable capacity †Assumes Energy Intelligence Opec production forecast.
Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Gary Peach, New York