China’s Demand for Oil Hits Record as IEA Raises Global Forecasts...

Outlook highlights widening divide between booming demand in the developing world and lackluster requirements in Europe and North America

  WSJ BY WILL HORNER, MAY 16, 2023

China’s insatiable demand for oil is growing at a faster-than-expected pace, threatening to tighten crude markets and send oil prices higher as supplies struggle to keep up, the International Energy Agency said.

The Paris-based agency’s latest outlook points to a widening divide between booming demand for crude across the developing world and lackluster demand in Europe and North America where economic prospects look bleak.

It also highlights a growing disconnect between oil prices—which have tumbled to their lowest levels in around 16 months in recent weeks—and expectations that strong demand for oil and limited supplies will prompt a sharp deficit that many analysts expect to lift oil prices.

In its closely watched monthly oil market report, the IEA raised its forecast for global oil demand growth this year by 200,000 barrels a day, to 2.2 million barrels a day. It said total demand would stand at 102 million barrels a day, 100,000 barrels a day more than it forecast last month.

China’s share of that increase, already expected to be large, appeared to be growing and “continues to surpass expectations,” the IEA said. The nation’s crude demand hit a record 16 million barrels a day in March while China will account for 60% of all oil demand growth this year, the IEA said.

While demand is set to boom in China and across the developing world, high interest rates and lingering inflation in developed nations are keeping demand for oil there in check. Efforts by Western governments to encourage a shift away from polluting fossil fuels are further heightening that gap as developing economies continue to see oil and coal as more affordable fuel sources.

Oil demand in the developed nations that make up the Organization for Economic Cooperation and Development will grow by just 350,000 barrels a day this year, the IEA said—around 16% of the total expected oil demand growth. The rest, around 1.9 million barrels a day, will come from non-OECD nations, primarily in Asia.

As oil demand grows this year, the IEA expects the oil market to slip into a large deficit as oil producers struggle to keep pace. Demand is expected to exceed supply in the current quarter for the first time since early 2022, with that gap growing to around 2 million barrels a day by the end of the year.

China will account for 60% of all oil demand growth this year, the IEA said. PHOTO: CFOTO/ZUMA PRESS

For 2023, global supplies are expected to average 101.1 million barrels a day, 1.2 million barrels a day more than in 2022.

Recent steps by major oil producers have only added to that growing gap. A plan by some of the largest members of the Organization of the Petroleum Exporting Countries to cut production by more than a million barrels a day began this month. Meanwhile, oil producers in the U.S. have been reluctant to invest money in new production.

Those OPEC cuts could see output from the group and its allied producers—known collectively as OPEC+—fall by 850,000 barrels a day between April and the end of the year, the IEA expects. Meanwhile, output from non-OPEC+ nations is expected to rise by 710,000 barrels a day in that time.

Despite the IEA’s forecasts for a tightening oil market, crude prices have remained subdued, offering some relief to economies and consumers struggling with high inflation. Concerns about the health of the U.S. banking system have been the latest issue to dog the outlook for global economic growth and weigh on crude prices.

Meanwhile, supplies from Russia have remained stronger than expected, helping to further depress prices. Russian oil exports hit 8.3 million barrels a day in April, their highest level since the invasion of Ukraine in February 2022, as Moscow doesn’t appear to have fully followed through on a plan to slash output by 500,000 barrels a day, the IEA said.

Brent crude oil, the international oil benchmark, hit its lowest level since December 2021 this month. It ticked up 0.6% to $75.71 a barrel on Tuesday, following the release of the IEA report.

The forecast of strong Chinese demand and a growing deficit from the IEA—and from other major energy forecasters such as the Energy Information Administration and OPEC—is why many analysts are expecting oil prices will rebound this year.

“The current market pessimism…stands in stark contrast to the tighter market balances we anticipate in the second half of the year,” the IEA said.