China Reopens Its Doors: Oil Demand Reaches Record Levels This Year

Global oil demand is expected to rise to the highest level ever in 2023, as China eases its Covid-19 restrictions. This move could increase crude oil prices in the second half of the year, according to the International Energy Agency (IEA).

Demand for crude oil could increase by 1.9 million barrels per day, reaching a record 101.7 million barrels per day, while the impact of Western sanctions on Russia threatens to limit supply, the IEA reported in its first monthly oil report for 2023.

– Two wildcards dominate the oil market outlook for 2023: Russia and China – the report states.

Crude oil prices surged nearly to record highs last year due to fears of disruptions in oil markets following the start of the Russian invasion of Ukraine, but then fell as Russian supply held steady and economic slowdown reduced demand, particularly in Europe, the Financial Times reported.

The Paris-based IEA, which advises governments on energy policy, stated that Russian oil supply ‘maintained stability’ in December, at 11.2 million barrels per day, despite the EU’s sanctions on Russian oil imports.

Increased Chinese Oil Demand

However, it is anticipated that the ‘well-supplied’ global oil market could ‘tighten quickly’ at the beginning of the year when Western sanctions (particularly the EU ban on imports of refined Russian products starting February 5) come into effect.

Brent crude oil prices, the international benchmark, rose 1.4 percent on Wednesday morning to over $87 per barrel, FT reports.

Growing optimism that Chinese demand will recover this year has helped oil prices rise by about ten percent last week. Additionally, the IEA stated that nearly half of the projected increase in oil consumption this year will come from China, although the ‘shape and speed’ of the country’s reopening remain uncertain.

Covid-19 restrictions in China, which significantly reduced economic activity last year, led to a decline in oil demand in 2022 for the first time since 1990, averaging a decrease of 390,000 barrels per day.

Nevertheless, the easing of quarantine and strict measures in November, followed by Beijing’s abrupt decision to abandon its so-called ‘zero-Covid’ regime in early December, has already stimulated Chinese consumption, the IEA said. Chinese oil demand in November rose by 470,000 barrels per day compared to October, according to agency data.

OPEC, the oil-producing group led by Saudi Arabia, expects Chinese demand to increase by 510,000 barrels per day in 2023, according to their monthly report published on Tuesday. OPEC forecasts that global oil demand will rise by 2.2 million barrels per day in 2023 to as much as 101.8 million.

OPEC and its allies, including Russia, increased their oil production by a total of 4.7 million barrels per day in 2022, but cut their collective production target in October, despite pressure from the U.S. to continue increasing production.