Global Oil Market Update: H2 2023
This new OIES presentation reviews the latest trends in current oil market dynamics and assesses the key factors that are expected to shape market outcomes. First, we take a closer look on the key transformations in crude and products trade flows and how the oil market has adjusted to the Russia-Ukraine war shock. Second, we analyse the prospects and risks for global oil demand with particular focus on the key uncertainties that could shape the Chinese demand growth outcomes into the rest of 2023 and 2024. Third, analysis shifts on the supply side and evaluates the OPEC+ supply response in the current cycle, the Russia-OPEC oil relations and the evolution of US supply response. The presentation concludes with the global balance and price outlooks for the remainder of 2023 and 2024.
– Oil markets have adjusted well to the Russia-Ukraine war shock, but this has come at a cost as the markets have become more segmented and less transparent, trade routes longer, and the optimization of crude oil most costly.
– China’s economic rebound has been less strong than many projected, but China’s oil indicators in H1 have been particularly strong. The key uncertainty now is whether this strength will continue into the rest of 2023 and 2024, as the Chinese economic recovery remains uneven and continues to face structural hurdles and heightened risks. Elsewhere, India remains a bright spot and the OECD resilience shown in H1 may soon start to wane.
– OPEC+ approach to market management in the current cycle has drastically changed and it is important to recognize that OPEC+ departed from previous behaviour by acting pre-emptively and not reversing supply quickly until trends are confirmed and providing some supply guidance beyond the near-term while maintaining a surprise element through voluntary cuts.
– US shale production has become more financially viable but also more inelastic and asymmetric in its response, while the use of the US SPR has been much less of a factor in shaping market outcomes in 2023 when compared to 2022.
– The oil market balance is forecast to fall into a 1.3 mb/d deficit in the second half of the year, implying stock drawdowns and providing support for oil prices in the $80-90/b range, as price risks are now fairly balanced due to supply/demand uncertainties moving in different directions