OIES Oil Monthly – Issue 9
The new issue of OIES Oil Monthly, including our first oil market outlook for 2023, is now available.
This month’s featured In Focus piece focuses on the impact of China’s power crunch on diesel demand. China’s power outages have boosted diesel margins, especially in light of reduced output from the Shandong independents. The State-owned majors have been slow to fill the gap but will now need to raise throughputs and import crude to fill depleted stocks. But while they need to secure supplies, they must also avoid a product glut amid an uncertain demand outlook for 2022.
This issue sees our first oil market outlook for 2023. Our reference forecast for Brent stands at $71.6/b in 2021, $80.9/b in 2022 and $76.6/b in 2023. We see the recent price strength persisting in the near-term on the tightness in OECD stocks and fuel switching, but slow returning crude supplies from OPEC+ and more moderate gas-to-oil switching than currently expected are still seen to cap prices in the $80s range. Beyond the near-term, returning supplies are expected to start pulling back prices to the $70/b and $80/b range in H2 2022 as some OPEC+ producers are seen struggling to meet their targets and low investment takes a toll on supply growth elsewhere. This will lead to prices reversing again in 2023 and returning towards $80s. Overall, the risks to the outlook remain fairly balanced but a new price bound emerges in the $70/b and $90/b range as supply risks rise. Downside demand side risks dominate in the near-term due to Delta concerns and how much switching will actually take place. Supply risks build progressively to the upside beyond the near-term, on supply bottlenecks both in OPEC+ and non-OPEC, while Iran’s supply outlook remains a wildcard.
Global oil demand growth remains solid at 5.4 mb/d in 2021, 3.6 mb/d in 2022 and 2.1 mb/d in 2023. Oil switching in the near-term is expected to brush aside Delta concerns, while global demand growth in the medium run appears resilient in the face of some headwinds. We expect global oil demand to recover to 2019 levels in all quarters in 2022 and average 0.22 mb/d higher, before growing by another 2.1 mb/d in 2023. Global oil supply is set to grow by 1.3 mb/d in 2021, 5.9 mb/d in 2022 and 2.2 mb/d in 2023. The ability of OPEC+ to return full supplies as per their plan and US shale response dictate the outlook, as low investment hampers growth elsewhere. By the end of the OPEC+ deal producers are now estimated to remain 1.9 mb/d below the 5.76 mb/d target, while US underpins non-OPEC growth in both 2022 and 2023 by 0.8 mb/d and 0.7 mb/d, respectively.
Following a -1 mb/d deficit in 2021, the oil market is projected to shift to surpluses in 2022 and 2023 by 1.3 mb/d and 1.4 mb/d, respectively. The substantial tightness in OECD stocks in 2021 that drew well below their 2015-2019 average means that there is now available gap to absorb the expected surpluses ahead without depressing the market, with stocks expected to normalize near their 2015-2019 average ending-2022.