Analysis by Dorothy T. Henderson
The Organization of the Petroleum Exporting Countries (OPEC) has released its latest monthly report, revealing an upward revision of its 2023 global oil demand growth forecast. The revision is a result of China’s loosening COVID-19 restrictions, and the trimmed supply forecasts for Russia and other non-OPEC producers, indicating a tighter market.
According to the report, global oil demand will rise this year by 2.32 million barrels per day (bpd), or 2.3%, which is 100,000 bpd higher than last month’s forecast. This tighter balance of supply and demand could help support oil prices, which have remained relatively steady since December and currently stand at around $86 per barrel.
OPEC had kept its 2023 demand growth forecast steady for the past two months, following a series of downgrades due to a worsening economic outlook. However, the report highlights the significance of China’s return from mobility restrictions in driving oil demand growth this year, while also expressing concern around the depth and pace of China’s economic recovery and its impact on oil demand.
OPEC expects Chinese oil demand to grow by 590,000 bpd in 2023, up from last month’s forecast of 510,000 bpd. China’s oil consumption decreased for the first time in years in 2022, as a result of COVID-19 containment measures. The report is optimistic about the economic prospects, with a revised global growth forecast of 2.6% from 2.5%.
While the report cites several positive factors, such as the likelihood of a soft landing for the US economy and further commodity price weakness, it also acknowledges potential negative risks, including geopolitical tensions in eastern Europe, China’s domestic challenges amidst the pandemic, and spillovers from China’s fragile real estate sector.
The report shows that OPEC’s crude oil production fell in January, after the OPEC+ alliance pledged output cuts to support the market. The cut of 2 million bpd agreed in November was the largest since the early days of the pandemic in 2020, with OPEC’s share of the cut being 1.27 million bpd. In January, OPEC’s crude oil output fell by 49,000 bpd to 28.88 million bpd, as declines in Saudi Arabia, Iraq, and Iran offset increases elsewhere.
OPEC has also lowered its forecast of 2023 growth in supply from non-OPEC producers to 1.4 million bpd, from 1.5 million bpd last month, due to lower expectations from Russia and the United States. Russia announced a cut in oil production by 500,000 bpd in March after the West imposed price caps on Russian oil and oil products, and OPEC now expects Russian production to fall by 900,000 bpd this year, down from the expected decline of 850,000 bpd last month.
With lower non-OPEC supply and higher demand growth, OPEC has raised its estimate of the amount of crude it needs to pump to balance the market in 2023 by 200,000 bpd to 29.4 million bpd, which is about 500,000 more than OPEC pumped in January.