Opec sticks to 2023 oil demand forecast despite economic headwinds in Europe and US

Opec has stuck to its 2023 growth projection for oil demand despite lowering its forecast in North America and Europe amid a slowing economy

The oil producers' group said better crude demand in Organisation for Economic Co-operation and Development (OECD) countries led by China, was balancing out the market.

Crude demand growth has been adjusted lower for “all four quarters of 2023, to reflect the most recently received data for first quarter of 2023 and account for an anticipated decline in economic activity in OECD Americas and OECD Europe”, Opec said in its monthly oil market report on Thursday.

“On the other hand, oil demand in the non-OECD countries was revised higher due to better-than-expected improvements in economic activity in China after its zero-Covid policy was discontinued, as well as expected further improvements in the Middle East, Latin America and other Europe.”

Opec expects crude demand to grow by 2.3 million barrels per day this year to 101.89 million bpd. However, that assessment is “subject to many uncertainties”, including the “trend and pace of economic activity” in OECD and non-OECD countries, Opec said.

It expects the non-OECD region oil demand to grow by 2.2 million bpd this year, while in OECD countries, the demand is projected to increase only slightly to above 0.1 million bpd on an annual basis.

In China, oil demand rebounded by 0.9 million bpd year-on-year in February, up from 0.8 million bpd in January.

“These improvements in oil demand came on the back of an ongoing recovery in economic and social activity combined with firm petrochemical sector requirements, with all oil product categories showing healthy demand in February,” Opec said.

China, the world’s second-largest economy and top crude importer, reopened its borders in January after adhering to a strict zero-Covid policy for about three years.

The Asian country is aiming for gross domestic product growth of 5 per cent this year, after growing by 3 per cent last year.

In March, Opec secretary general Haitham Al Ghais was said he was “cautiously optimistic” about China's reopening but added that a slowdown in the US and the EU could dampen crude demand this year.

“There is phenomenal demand growth in Asia [but] what concerns us more is actually the slowdown we see in Europe and the US in terms of the financial situation [and] the inflation,” Mr Al Ghais said at the CeraWeek energy conference in Houston.

“We see a kind of a divided market … one market with promising growth [and] the other side with a slowdown.”

This month, Goldman Sachs estimated the reopening of China’s economy and a full recovery in the country's domestic demand will be a boon to the global economy, boosting world GDP by about 1 per cent in 2023 and lead to a rally in oil prices.

China’s oil imports in March surged 22.5 per cent from a year earlier to the highest level for a single month since June 2020, as refiners stepped up runs in anticipation of an economic recovery, Reuters reported on Thursday, citing data from China's General Administration of Customs.

Crude imports in March came to 52.3 million tonnes, or 12.3 million bpd, compared with 10.1 million bpd in the same month last year, signalling that economic activity in China is picking up pace after the pandemic-driven slowdown last year.

This month, the Opec+ alliance of 23 oil producers agreed to stick to oil output cuts after nine of its members moved to voluntarily reduce more than one million bpd of production collectively in a surprise move.

Opec+ members including Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria said they would implement voluntary oil production cuts of 1.16 million bpd from May until the end of the year.

Russia has also said the 500,000 bpd cut it is introducing from March to June would continue until the end of the year.

The precautionary measure is aimed at supporting the stability of the oil market, the alliance said.

The latest pledge of output cuts pushes total volume of production caps by the Opec+ members to about 3.66 million bpd since October, which accounts for roughly 3.6 per cent of 101.9 million bpd world oil demand this year.

Although, Opec expects the global economy to continue growing, albeit at a slower pace, it expects it to “navigate through challenges including high inflation, higher interest rates particularly in the eurozone and the US, and high debt levels in many regions”.

The group kept its global economic growth estimate for this year unchanged from last month’s projections of 2.6 per cent, compared with 3.3 per cent expansion in 2022.

Considering the uncertainties and particularly the current monetary tightening cycle of major central banks, “downside risks for the global growth forecast exist”, the Opec report said.

However, upside potential may come from less “accentuated inflation”, which will give central banks room for an accommodative monetary policy towards the end of the year, it added.

In the eurozone, the better-than-expected dynamic at the turn of the year may continue well into the year, while in emerging Asia, a stronger-than-anticipated rebound in China may be another possibility.

“India could surprise, with domestic demand accelerating further”, the Opec report said.

The group said the non-Opec liquids supply growth remained at 1.4 million bpd, broadly unchanged from last month’s assessment.

The main drivers of liquids supply growth are expected to be the US, Brazil, Norway, Canada, Kazakhstan and Guyana, while the decline is expected primarily in Russia.

Large uncertainties remain over the impact of the output prospective for US shale this year, Opec said.

Oil prices edged lower on Thursday after a two-day rally as traders looked to consolidate positions amid signs of tightening market and encouraging US inflation data.

Brent, the benchmark for two thirds of the world’s oil, was down 0.49 per cent at $86.90 a barrel at 3.24pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.43 per cent at $82.90 a barrel.