By Will Horner
The International Energy Agency raised its forecasts for oil demand this year to a new record level, as China's reopening fuels a surge in air travel across Asia, while also adding to its supply forecast as Russian production remains surprisingly resilient to Western sanctions.
The Paris-based energy watchdog said in a monthly report that it expects oil demand to grow to 101.9 million barrels a day this year--a record level--propelled almost entirely by booming demand in Asia. The figure is 200,000 barrels a day more than the IEA was forecasting last month, which was also a record amount.
That figure means demand is expected to grow by 2 million barrels a day this year of which Asian nations will account for 1.4 million barrels a day and China alone will account for 900,000 barrels a day.
A resumption of international travel across Asia due to China ending lockdown measures associated with the Covid-19 pandemic and reopening its borders to travelers was largely behind the increase, the IEA said.
"Following the relaxation of anti-Covid lockdown measures in China, the country is set to resume its established role as the primary engine of world oil demand growth," the IEA said.
Demand for aviation fuels is expected to soar by 1.1 million barrels a day globally this year to 7.2 million barrels a day, roughly 90% of global pre-pandemic demand. January, in particular, saw an uptick in air travel around China's Lunar New Year holiday, the IEA said.
Rebounding Asian demand for oil is a key reason why the IEA is expecting oil markets to tighten significantly this year, returning to a deficit in the second half of 2023. It expects demand for oil to exceed supplies by 1.4 million barrels a day in the third quarter, growing to 1.9 million barrels a day in the fourth quarter.
Still, Russian oil output has shown stronger-than-expected resilience to Western sanctions, leading the IEA to revise higher its forecast for Russian output and moderate its expectations for that deficit since last month.
In last month's report, the IEA's figures implied a deficit of 1.6 million barrels a day in the third quarter of 2023 and 2.1 million barrels a day in the fourth.
Despite Western measures including a price cap on Russian oil sales and an EU ban on Russian oil imports, both of which came into force in December, Russian oil exports rose by 300,000 barrels a day in January to 8.2 million barrels a day, close to its previous all-time high.
Russia's exports of refined oil products, such as diesel and gasoil, also held steady ahead of an EU ban on imports of such products which came into effect earlier this month.
Europe, the traditional destination for the majority of Russia's refined products, cuts its imports to 1.3 million barrels a day last month, compared with 3.9 million barrels a day before Russia's invasion of Ukraine. Instead, other nations, many in Africa, had stepped in and increased imports from Russia.
By the end of March, the IEA expects around 1 million barrels a day of Russian output will be forced offline as the impact of the measures build. But that is significantly less than the 1.6 million barrel-a-day figure the IEA was expecting at the start of the year.
Last week Russia said it would cut its production by 500,000 barrels a day in March, which it said was a "voluntary" choice made in response to the sanctions. The IEA said it was more likely that Moscow was forced into the move as it struggles to find buyers for its oil.
Write to Will Horner at william.horner@wsj.com
(END) Dow Jones Newswires
02-15-23 0414ET
