Thanks mainly to China finally emerging from its Covid-19 lockdowns
The dynamics around energy markets are changing fast.
China, the world’s largest crude importer, is finally beginning to open up, signalling that it has passed the COVID-19 peak and is now ready for business as usual. As a consequence, Beijing is reportedly on a crude buying spree. This is keeping the markets buoyant.
At the end of last week, oil rallied to its highest level since mid-November, capping its second straight week of gains on optimism of increased demand from China and brushing aside the prospects of a global recession.
Chinese demand is only bound to grow, according to reports. Reuters reported that Chinese crude demand had already jumped by nearly one million barrels per day (bpd) in November. And, said the Paris-based OECD energy watchdog International Energy Agency (IEA) on Wednesday, China’s emergence from COVID-19 restrictions should bring global demand to a record high this year. The day before, the Organization of Petroleum Exporting Countries (OPEC) also forecasted a rebound in Chinese crude demand this year.
“The preeminent driver of 2023 GDP and oil demand growth will be the timing and pace of China’s post-lockdown recovery,” Reuters reported, quoting the IEA’s latest monthly report (MOR).
The increased demand from China, and an expected decrease in Russian exports due to western sanctions, have led to increased pressure on the global crude demand-supply balance, with a corresponding impact on oil market prices.
According to OPEC, global oil demand, based on the global economy’s growth prospects, was set to rise by 2.2 million barrels per day to an average of 101.77 million bpd in 2023.
“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. OPEC also raised its 2022 world economic growth estimate to three per cent, saying growth last year in the United States and the eurozone had surpassed previous forecasts. For the time being, though, OPEC has left 2023’s growth forecast steady at 2.5 per cent.
China, OPEC maintains, remains the ‘reason’ behind the positive projections. “Chinese oil demand is on course to rebound due to the recent relaxation of the country’s zero-COVID-19 measures,” it said, adding that plans to expand fiscal spending were also likely to support demand.
OPEC projected the Chinese demand to grow by 510,000 bpd in 2023. Last year, the country’s crude consumption posted its first contraction in years due to the COVID containment measures.
Meanwhile, while global crude demand is projected to grow, major oil producers do not appear ready to let the markets decide their fate. They are intent on keeping a close tab on supplies. Russia and Saudi Arabia, the world’s top oil producers and exporters, have agreed to continue to work in cohesion and not let supplies inundate the markets and crash prices.
Saudi Arabia’s Foreign Minister, Prince Faisal bin Farhan Al-Saud, told Bloomberg last Thursday that “we have a very important partnership with Russia on OPEC+,” adding that the partnership “has delivered stability (to) the oil market.”
Several unknowns continue to impact the crude market demand-supply equation, however. These include the surge in Iranian exports, the possibility of a global economic slowdown, the real impact of sanctions on Russian crude exports and, now, the sanctions on Russian refined oil products expected to be in effect from Feb. 5, and the ultimate volume of Russian exports to its current major markets, especially in Asia – mainly China, India and now Pakistan.
Yet, major suppliers are finally hopeful. Their hope is pinned upon the Chinese demand recovery and a tight tab on crude supplies by the suppliers’ group – OPEC+.
By Rashid Husain Syed
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.