Global oil market tightens as China fuels record demand; Saudi Arabia and Russia extend output cuts: IEA Report, ET EnergyWorld

New Delhi: A newly released report by the International Energy Agency (IEA) for September forecasts a tightening global oil market until the end of the year. The report underscores China’s significant role in driving world oil demand, which is set to grow by 2.2 million barrels per day (mb/d) in 2023, reaching 101.8 mb/d.

China’s unstoppable appetite

According to the IEA report, resurgent consumption in China, especially in jet fuel and petrochemical feedstocks, is a major contributing factor to the global increase in demand. While in 2024, the focus will shift to naphtha and LPG/ethane as primary drivers, the year is expected to see a more modest increase of 990 kb/d, reaching 102.8 mb/d, owing to below-trend GDP growth and a structural decline in road transport fuel usage in significant markets.

Production cuts and market deficit

Saudi Arabia and Russia’s decision to extend their output cuts through the end of the year is poised to maintain a considerable market deficit until the fourth quarter of 2023. The OPEC+ output has seen a 2 mb/d decline so far this year, albeit mitigated by higher flows from Iran. On the other hand, Non-OPEC+ supply has risen by 1.9 mb/d, marking a record at 50.5 mb/d as of August 2023, with the United States, Iran, and Brazil as the major sources of this upturn.

Russia’s rising export revenues

The Russian oil export revenue witnessed a surge, rising by $1.8 billion to $17.1 billion in August. Higher prices have more than offset the decrease in shipments, which declined by 150 kb/d last month to 7.2 mb/d. Shipments to China and India have dropped from 4.7 mb/d to 3.9 mb/d between April and May but still account for over half of the total export volumes.

Refinery margins soar

With refiners grappling to match the growth in oil demand, refinery margins hit an eight-month high in August. Challenges such as unplanned outages, feedstock quality, and supply chain bottlenecks have pushed product cracks and margins to near-record levels. Global refinery operations are projected to rise by 1.7 mb/d to 82.4 mb/d in 2023 and by 1.2 mb/d to 83.6 mb/d in 2024.

Dwindling inventories

Global oil inventories plummeted to a 13-month low in August, with a significant draw seen in China. Non-OECD oil stocks fell by 20.8 mb, while OECD inventories eased by a mere 3.2 mb.

Oil price trends

Oil prices hovered around $85/bbl through most of August but escalated by the end of the month, breaching the $90/bbl mark for the first time in 10 months, following Saudi Arabia and Russia’s announcement of extending voluntary production cuts until the end of 2023.

This month’s report also marks the 40th anniversary of the IEA’s Oil Market Report. While the international oil market has grown exponentially complex over the past four decades, concerns about energy security continue to echo as critically now as they were back in 1983.

  • Published On Sep 18, 2023 at 07:19 PM IST

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