Short Term Oil Market Outlook: Q1 2023

This new OIES presentation on the Short-Term Oil Market Outlook focuses on the two main swing factors that dominate the oil market outlook in 2023. First, we take a closer look on China’s oil outlook and how the recovery path of Chinese demand could evolve following the reversal of China’s zero-COVID policy and the country’s re-opening. Second, we analyse the expected impacts of EU sanctions and price cap on Russian crude and products exports and how these are expected to shape the Russian refinery runs and crude oil production profiles in 2023.

Key points:

– Chinese oil demand is projected to grow by 700,000 b/d this year, recording a strong rebound in H2, but more volatility in the domestic market means that a W-shaped recovery path is more likely in 2023. Uncertainty over our reference outlook for China’s oil demand growth remains confined within the 500,000 b/d and 850,000 b/d range.

– A classification change for diesel could mean less product exports than initially expected while crackdowns on Shandong raise questions about the government’s priorities: cracking the whip or spurring growth?

– Russian crude production is forecast to decline y/y by 530,000 b/d to 10.2 mb/d, with Russia’s crude output falling to 10 mb/d in Q2 from 10.8 mb/d in January and the disruptions as compared to pre-war Jan/Feb-22 levels averaging 850,000 b/d for the year.

– Uncertainty however remains elevated, with our high case showing Russian production falling below 10 mb/d to 9.8 mb/d by April and disruptions reaching 1.2 mb/d, while our low case sees Russian production maintained above 10 mb/d and crude output disruptions averaging 650,000 b/d for the year.

– Overall, we expect Russia to struggle redirecting around 50% of the total EU banned volumes of product exports, with Russian refinery runs projected to start declining from February-onwards and remaining below 5 mb/d for the remainder of the year. Russian refinery runs are forecast to average 4.9 mb/d in 2023, a y/y decline by 500,000 b/d from 5.4 mb/d in 2022.

– Under our reference case we expect the market to remain relatively balanced in 2023 and register a small 300,000 b/d surplus, with the Brent price projected to average $95.7/b and the Brent prospect standing lower at $90.6/b. Uncertainty however remains elevated and risks remain tilted to the downside, albeit easing as we move further into the year.

By: Bassam Fattouh , Andreas Economou