January 31, 2023

WWW.ENERGYINTEL.COM

Benchmarking: Chinese Consumption, Russian Exports Shape 2023 Narrative

  • In the first month of 2023, global forecasts have pegged this year’s oil demand growth in a relatively wide range of 1 million-2.2 million b/d.
  • Russian liquids production, arguably the greatest unknown of 2023, is expected to decline by an average 1.24 million b/d, according to the four agencies surveyed for this analysis.
  • Currently no consensus on global balances this year exists as forecasts considerably diverge, particularly for the second half of the year.

The price and trading volatility from the outbreak of the pandemic three years ago has expanded into uncertainty over China’s oil consumption, Russian oil supply and a global natural gas crisis. These factors combine and complicate forecasts for global oil markets. However, among major forecasters there is consensus that the focus on oil markets will be Chinese demand and Russian supply. The configuration of these two gigantic market forces will largely determine oil prices from now until the end of the year.

Demand Outlook

In 2022, oil consumption grew by 1.8 million barrels per day to 2.5 million b/d, according to the latest assessments by the four organizations in this survey, with Energy Intelligence at the low end of the range and Opec at the high end. Curiously, at the start of 2022, the forecasts for growth ranged from 3.3 million b/d to 4.2 million b/d, indicating a broad downward revision of 1.5 million b/d over the course of the year. There is no reason to believe that 2023 will be any different and initial forecasts will see significant adjustments. But for now, if averaging the four forecasts, 2023 demand growth is estimated at 1.6 million b/d, down 500,000 b/d from the average growth of consumption last year.

At the low end of the range is the US Energy Information Administration (EIA). It sees demand increasing by a mere 1 million b/d to 100.5 million b/d given the challenging macroeconomic environment. Sluggish demand growth this year will be followed by a 1.7 million b/d jump in 2024, the EIA said. Opec again is the most bullish on demand this year, pegging growth at 2.2 million b/d to 101.8 million b/d, while the International Energy Agency (IEA) is not far behind at 1.9 million b/d to 101.7 million b/d, having lifted its forecast by nearly 100,000 b/d over the past month. The Paris-based organization says that jet fuel and kerosene will be the largest contributors and account for 45% of this year’s demand increase, or 850,000 b/d.

Energy Intelligence, meanwhile, is at the low end of the survey. We see demand expanding by “only” 1.6 million b/d to 101.1 million b/d as we remain conservative on China’s economic outlook. The country’s GDP is expected to expand by 1.6% in January-February, and if a recession impacts the US and Europe, China’s exports will be impacted.

Created with Highcharts 9.0.0(million b/d)DEMAND GROWTH FORECASTS, 2023Energy IntelligenceIEAOpecEIADec'23Nov'23Oct'23Sep'23Aug'23Jul'23Jun'23May'23Apr'23Mar'23Feb'23Jan'23Dec'22Nov'22Oct'22Sep'22Aug'22Jul'220123Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO
Created with Highcharts 9.0.0(million b/d)DEMAND FORECASTS, 2023Energy IntelligenceIEAOpecEIAJan'23Dec'22Nov'22Oct'229698100102104Source: Energy Intelligence, IEA OMR, Opec MOMR, EIA STEO

Russian Enigma

Following a Dec. 5 crude ban, the European Union is prohibiting the import of Russian products from Feb. 5. Seaborne exports of both will be forbidden from using Western shipping and insurance services unless they are compliant with the so-called G7 price caps. Hence, a large question mark hangs over the fate of supply from Russia, the world’s second-largest exporter of both crude and products. Last year, the country exported a total 7.6 million b/d of fuels, according to Energy Intelligence data.

The range of estimates for an anticipated decline in Russian output this year is 850,000-1.45 million b/d. Opec is at the low end, while the EIA is the most pessimistic. The IEA and Energy Intelligence’s forecasts for a decrease in Russian supply this year are virtually identical at 1.3 million b/d, to 9.75 million b/d and 9.4 million b/d, respectively.

Muddled Balances

Last year consensus saw a net gain for global oil inventories. On average, this was nearly 300,000 b/d for the year. On the high end was the EIA, as its balances for 2022 showed a build of 540,000 b/d, while Energy Intelligence occupied the low end. Our balance shows that the net increase in inventories was 100,000 b/d. At this point early in 2023 there is no consensus on global balances and whether a net draw or increase in crude oil inventories will result. The divergences are wide. To be sure, consensus emerges in various inflection points, such as in the first half of the year, when agencies agree that supply will outpace demand.

Energy Intelligence’s forecast is distinguished in that we see a more balanced market compared to other forecasts. For the year, we are estimating a build of 100,000 b/d. A surplus of 1 million b/d in January-June will be offset by a 1.2 million b/d deficit in the second half of the year. The IEA is predicting the same trend — i.e., a glut in the first half and a deficit in the second. But it sees a much bigger draw of 1.8 million b/d for the June-December period, resulting in a net inventory decline of 600,000 b/d for the calendar year.

Opec doesn’t forecast own production, but if using Energy Intelligence’s estimates of Opec crude supply this year, the Vienna-based organization’s balances indicate an average draw of 200,000 b/d this year. The EIA stands apart from the pack. They are forecasting an inventory build for every quarter of the year, growing from 300,000 b/d in the first to 1.1 million b/d in the last. For the year, the average gain for stocks will amount to 600,000 b/d.
Gary Peach, New York