IEA surprised by oil demand upside in growth revision

The IEA said it has been surprised by recent resilient oil consumption data, revising higher its forecasts for demand growth this and next year. But it said the oil market is heading into a period of significant uncertainty at a time of low global stocks, raising the possibility of a price rally.

Its latest monthly Oil Market Report (OMR) released on 14 December said demand has been particularly buoyant in non-OECD regions, where gasoil use was substantially higher than a year earlier. But falling consumption in developed economies would have depressed its fourth-quarter forecast if not for some notable gas-to-oil switching.

Although the IEA still sees demand contracting in the current quarter, it now puts this fall at 110,000 b/d compared with the 240,000 b/d forecast it made in its November OMR. Coupled with an upwards revision to its third-quarter consumption assumption, the IEA raised its forecast for demand growth this year by 140,000 b/d, giving a year-on-year increase of 2.3mn b/d to 99.9mn b/d.

For 2023 the IEA now forecasts demand up by 100,000 b/d more than in its November OMR, giving an annual increase of 1.7mn b/d. It now assumes China will begin to remove its Covid-19 restrictions "in earnest" from the first quarter of the year, with demand gathering pace in the second half to reach year-on-year growth of 680,000 b/d.

Restricting growth in 2023 will be a slowdown in Indian demand after a period of extremely swift expansion, a lessening of this year's high levels of oil use in Middle East power generation and the likelihood of a recession in the US and Europe. The IEA said recent signals for a slower pace of interest rate rises from the US Federal Reserve have elevated the prospects of these economic downturns being mild.

The IEA forecast global production to exceed demand this month and throughout the first quarter of 2023, even though it said output is falling on a combination of the EU ban on seaborne Russian crude imports and the associated G7-led price cap that came into effect on 5 December, an easing in production from outside Opec+ and that group's sharply reduced supply ceiling.

It sees global oil supplies up by 4.7mn b/d this year at 100mn b/d, led by record annual rates from Saudi Arabia and the US, along with solid gains from Canada, Guyana and Brazil. For 2023 the IEA forecasts supplies to rise by 770,000 b/d to 100.8mn b/d, a 30,000 b/d upgrade from its previous OMR. The US, Brazil and Norway will lead non-Opec+ increases, with the IEA now forecasting a 1.4mn b/d fall in supplies from Russia next year.

Global inventories fell by 32.2mn bl in October, the IEA said, led by a fall in product stocks. Preliminary data for November show a 3.1mn bl build.

"As we move through the winter months and towards a tighter oil balance in [the second quarter of 2023], another price rally cannot be ruled out," it said.

By Ben Winkley