Global oil demand continues to lose momentum due to China’s economic weakness and a slowdown in countries of the Organization for Economic Cooperation and Development, the International Energy Agency said Sept. 14, trimming its 2022 demand growth estimate by 100,000 b/d, reports SP Global.
Switching from gas to oil
Lowering its demand growth estimate for 2022 to 2 million b/d, the IEA noted demand had found some support from high gas prices prompting a switch from gas to oil in power generation and refinery operations, estimating the impact at 700,000 b/d in Q4 2022 and Q1 2023 compared with normal seasonal trends.
However, “Global oil demand remains under pressure from the faltering Chinese economy and an ongoing slowdown in OECD economies,” the IEA said. “[Year-on-year] growth continues to lose momentum, slowing from 3.5 million b/d in H1 22 to only 1.1 million b/d in Q3 22, before grinding to a halt in Q4 22.”
“Slightly higher OPEC+ volumes and slower demand could see a much-needed global stock build during the rest of this year and into the first half of 2023,” it said of the impact on stock levels, adding that industry stocks in the OECD had risen 43.1 million barrels in July to 2.71 billion barrels.
The build in industry stock levels, partly attributable to releases from the US Strategic Petroleum Reserve (SPR) since Russia’s invasion of Ukraine, had narrowed the stock deficit versus the 2017-2021 average to 274.9 million barrels, its smallest since November 2021, the IEA said.
On Russia, the IEA said the country’s production and exports were proving “resilient” in the face of sanctions, with Russian oil exports rising 220,000 b/d in August to 7.6 million b/d, though 390,000 b/d below levels before the invasion. However, it also forecast Russian production would be 1.9 million b/d lower in February 2023 than a year earlier due to intensifying sanctions.
Price weakness
In terms of prices, the IEA highlighted the slump in Brent futures since June, including a 65% fall in backwardation in the three months from a June peak. Noting the role of seasonal factors and increased supply, it said “the global economy is on the cusp of a recession,” while adding that diesel and jet fuel markets remain “exceptionally tight.”
“The oil supply increase from June to August substantially outstripped demand growth. Global seaborne crude oil exports rose 1.3 million b/d in the three months to August, 30% more than overall demand. Combined with the steady release of SPR barrels… this has fed a build in oil industry stocks that helped substantially ease crude price tensions,” the IEA said.
The bearish tone was in contrast to OPEC’s own monthly oil market report on Sept. 13, which forecast robust demand growth of 3.1 million b/d in 2022 and a further 2.7 million b/d in 2023 buoyed by “still-solid” economic performance in many countries and feedstock switching in power generation.
Analysts at Platts, part of S&P Global Commodity Insights, have lowered demand expectations, with an end-August forecast reducing 2022 demand growth by some 200,000 b/d to 2.6 million b/d due to a weaker-than-expected second half in the US, Western Europe and China.
Platts has also reported a weakening in the previously very strong North Sea market. Dated Brent was assessed at $91.45/b on Sept. 13, down $1.77/b on the day.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: SP Global
