Chinese oil demand to rebound in 2023 after drop

Chinese oil demand to rise by 510,000bpd in 2023; Opec Dec output rises by 91,000bpd, despite Opec+ cut pledge; Leaves 2023 world demand growth steady; Says Fed most likely to manage soft landing for US economy

Opec sounded an upbeat tone on the world economy’s prospects, even though it still expects a relative slowdown from 2022.

By Reuters

Published: Tue 17 Jan 2023, 6:35 PM

Opec said on Tuesday Chinese oil demand would rebound this year due to relaxation of the country’s Covid-19 curbs and drive global growth, and sounded an optimistic note on the prospects for the world economy in 2023.

World demand in 2023 will rise by 2.22 million barrels per day (bpd), or 2.2 per cent, the Organisation of the Petroleum Exporting Countries (Opec) said in a monthly report, unchanged from last month’s forecast, which had ended a series of downgrades.

A stronger economy, if it materialises, could lead to upward demand revisions and support oil prices, which have rallied in 2023 on Chinese demand hopes. Opec sounded an upbeat tone on the world economy’s prospects, even though it still expects a relative slowdown from 2022.

“The global momentum in the fourth quarter of 2022 appears stronger than previously expected, potentially providing a sound base for the year 2023,” Opec said in the report.

“Chinese oil demand is on course to rebound due to the recent relaxation of the country’s zero-Covid-19 measures,” it said in a separate section, adding that plans to expand fiscal spending were also likely to support demand.

Opec expects Chinese demand to grow by 510,000bpd in 2023. Last year, the country’s oil use posted its first contraction for years due to the Covid containment measures.

In the report, Opec raised its 2022 world economic growth estimate to three per cent, saying growth last year in the United States and the euro zone had surpassed previous forecasts, and left 2023’s forecast steady at 2.5 per cent.

As well as China, the report said the US Federal Reserve managing a soft landng for the US economy — which it called the most likely outcome — and further commodity price weakness were sources of upside.

“Downside risks include higher-than-expected inflation, which could prompt further monetary tightening by major central banks,” Opec said.

Nigerian output recovery

The report also showed that Opec’s production rose in December, even after the Opec+ alliance comprised of Opec, Russia and other allies pledged output cuts.

For November last year, with prices weakening, Opec+ agreed to a two million bpd reduction in its output target - the largest since the early days of the pandemic in 2020. Opec’s share of the cut is 1.27 million bpd.

In the report, Opec said its crude oil output in December rose by 91,000bpd to 28.97 million bpd, led by a rebound in Nigeria which is exempt from voluntary cuts. Opec compiles the figures from secondary sources.

Nigeria has been battling with crude theft and insecurity in its oil-producing region, although some companies have cited improved security. The country boosted output by 91,000bpd to 1.27 million bpd in December, Opec said.

That is still below Nigeria’s Opec quota of 1.74 million bpd although the country is aiming for further recovery in 2023.

500,000bpd Chinese demand

Chinese appetite for oil is expected to raise demand by 500,000 barrels per day after the country curbed its Covid-19 restrictions, Opec secretary-general Haitham Al Ghais told Abu Dhabi-based Sky News Arabia from Davos on Tuesday.

"Demand from India and China could compensate for shrinkage expected from developed countries," he added.

Separately, Al Ghais said it is still early to assess the impact of sanctions on Russian oil supply. — Reuters