Supply may struggle to keep up with demand in 2023: IEA

The IEA expects a resurgent China to help drive an acceleration in global oil demand growth next year, leaving consumption more than 1mn b/d higher than pre-Covid levels and supply struggling to keep pace as sanctions tighten on Russia.

In its first projection for 2023, the Paris-based energy watchdog forecasts global oil demand will increase by 2.2mn b/d to 101.6mn b/d, following on from a 1.8mn b/d rise in 2022.

Whereas this year's growth is underpinned by advanced economies emerging from the pandemic, next year's gains are driven by China, with Asia-Pacific as a whole accounting for three-quarters of the projected 2.2mn b/d increase.

"While underlying economic growth is forecast to remain subdued in 2023, resurgent Chinese oil consumption will more than compensate for a slowdown in OECD oil demand next year," the IEA said in its latest Oil Market Report (OMR).

Rising demand for jet fuel and petrochemical feedstocks LPG and naphtha will dominate growth in 2023, and much of this results from "a robust recovery in Chinese demand following the severe Covid-19 disruptions of 2022".

Supply may struggle to keep pace with demand next year, the IEA said, pointing to tougher sanctions on Russia and an eroding spare capacity cushion within the rest of the Opec+ group. The agency sees producers outside the Opec+ bloc adding 1.9mn b/d of supply in 2022 and a further 1.8mn b/d in 2023, with the US accounting for 60pc of the non-Opec+ gains next year.

In contrast, supply from Opec+ could fall in 2023 as sanctions shut in Russian output and Opec+ production declines outside the Middle East.

"While the bloc's output could expand by 2.6mn b/d this year as record 2020 supply cuts are unwound, it is poised to contract by 520,000 b/d next year if Russia's production trajectory follows the path set in motion by international sanctions levied in response to Moscow's invasion of Ukraine," the IEA said.

The IEA acknowledges Russian production has held up better than it expected. The agency's initial prediction that as much as 3mn b/d of Russian oil output could be forced offline from April proved way off the mark. By its own estimates, last month's Russian liquids output was only 850,000 b/d below pre-invasion levels.

The IEA said it expects Russian production to hold steady this month before starting to decline gradually as the EU's embargo is phased in.

"By the start of next year, we expect to see close to 3mn b/d shut in," it said.

By James Keates