Global oil demand in 2023 is expected to grow 2.32 mb/d compared with 2022. China and India continue to remain the main drivers in the oil market this year. According to the Petroleum Exporting Countries (OPEC) data, China will have a 26% share (590 tb/d) of this global increase in oil demand, but the IEA estimates China’s share at 47% (900 tb/d) of its own estimate of 1.9 mb/d increase. In-between, Russia has become a leading oil supplier to China. The Directorate of OPEC and International Energy Fora of Iran’s Ministry of Petroleum has reviewed the oil market based on the latest reports released by the OPEC, International Energy Agency (IEA) as well as the US’s Energy Information Administration (EIA).

Uncertainties continue to stand out in the 2023 oil market review. The main factors involved are uncertainties pertaining to global economic shrinkage, demand growth in China following the end of the zero-COVID restrictions, continuation of geopolitical tensions in Europe, Europe’s energy supply policy in winter 2023, the EU sanctions regime against Russia’s oil exports and oil price cap decisions.

Oil demand up 2.3 mb/d

With projections for the increase in global oil demand this year, demand is expected to exceed 101.87 mb/d, according to the OPEC’s latest report. The main factor would be an increase in travels and growing demand in China.

Non-OECD countries are expected to account for the bulk of crude oil demand growth in 2023. It is largely expected to exceed pre-COVID demand in 2019. But demand by OECD member states in 2023 is widely expected to fall compared with pre-COVID levels. Asian nations like China and India would account for the highest demand in 2023 with the transport sector contributing the most. Demand for gasoline and gasoil and also for jet fuel is expected to rise 1.1 mb/d, showing a 50% increase.

Crude oil supply up 1.44 mb/d

In 2023, crude oil supply is forecast to grow 1.44 mb/d year-on-year. Moreover, non-OPEC oil production is expected to exceed 67.01 mb/d. The US, Canada, Brazil and Guyana would account for the bulk of annual growth in oil supply.

According to the OPEC’s monthly report, US oil supply from various sources, particularly shale plays, is estimated to grow 1.1 mb/d in 2023 from the year before to reach 20.14 mb/d. Canada and Brazil would follow suit. Brazil is said to be planning to bring its output to 4 mb/d.

OPEC share of global trade

OPEC continues to contribute 28% of global oil trade. In January, OPEC’s total output was down 49 tb/d month-on-month to 28.088 mb/d. Member countries’ production has been below OPEC projections. The OPEC members supplied 900 tb/d below their quotas with Saudi Arabia and Iraq having recoded higher declines among fellow members. The OPEC forecasts 380 tb/d oversupply in 2023, while the IEA estimates oil market would need 600 tb/d more oil. OPEC has sought to strike a balance to the market. Adoption of this policy caused OPEC basket price in January to grow 1.9% month-on-month to reach $81.6 a barrel.

OECD member states are also estimated to bring their oil storage to 2.887 billion barrels, which would still be below the five-year average. Now, storage has been 95 million barrels below the five-year average. Furthermore, despite the increase in US oil stock, strategic petroleum reserves (SPR) of this country has dropped 222 million barrels. Before September, 26 million barrels would be released from the SPR, which would be in compliance with the US export plans.

A key market factor in 2023 under the present geopolitically special circumstances is the continuation of policy of freeing up SPR in the US and its allies.

Russia grey trade

OPEC’s latest monthly report says Russia would see its oil supply drop more than 900 tb/d against the backdrop of geopolitical tensions with Ukraine and Western embargo. However, with the change in the flow of oil supply to Europe, the bulk of Russian supply would be destined to Asian nations. Other sources estimate Russia’s oil supply decline at more than 1 mb/d.

In reaction to the tightening of Western oil sanctions, Russia has sought to evade detection by resorting to grey oil trading. But data shows Russia has shipped crude oil mainly to Asia, shifting away from Europe. West’s embargo has slashed Russia’s oil revenue. Russia saw its revenue fall in January by 46% due to discounts in oil selling.

Another key issue associated with the oil market is underinvestment in this sector at the global level. If China’s demand increases in 2023 following lifting of tough COVID-19 restrictions, oil prices are expected to reach $100 in the second half of the year, in which case, buyers of Russian oil would increase due to cut-price oil.

Iran Petroleum