In the latest report on the oil market, the International Energy Agency expected that the global demand for oil would reach 102 million barrels per day, driven by China, whose demand for oil, according to the International Energy Agency, reached 16 million barrels per day two months ago.
According to the International Energy Agency, oil demand will grow by 2.2 million barrels per day this year.
A week ago, in its latest monthly Oil Market Report, OPEC left its forecast for global oil demand growth unchanged, but revised its outlook for Chinese demand upward: the organization now expects it to grow by 800,000 barrels per day, up from a previous forecast of 760,000 barrels per day. .
Meanwhile, oil prices remain sharply depressed despite this optimistic demand outlook. In fact, prices fell the same day the International Energy Agency released its report, which is unequivocally bullish. Why? Because data from China showed that manufacturing activity and retail sales growth were weaker in April than expected.
There seems to be a big dichotomy between forecasts and actual data, and traders are watching the latter, which affects oil prices significantly. The problem with that is that if the International Energy Agency and OPEC are right, and supply curtails later this year, the shock will be much stronger.
The International Energy Agency wrote in the May edition of the RO report: “Global oil demand is expected to rise by 2.2 million barrels per day year-on-year in 2023 to an average of 102 million barrels per day, an increase of 200,000 barrels per day from last month’s report. Related: Goldman Sachs: Oil Markets Face a Supply Crisis in 2024
The agency noted that “the recovery of demand in China continues to exceed expectations, as the country recorded an all-time record in March at 16 million barrels per day.”
On the same day, oil prices fell because Chinese industrial activity increased 5.6% in April, when a Reuters poll of economists showed expected growth of 10.9%. Incidentally, 5.6% is a solid increase over the industrial activity growth rate for March, which was 3.9%.
According to hard data, China’s industrial activity is picking up speed. According to economists, it’s not moving fast enough because we’re all so used to double the growth from China, and anything else is interpreted as weak.
“Chinese data on demand appears to be misleading, with mobility data reflecting freedom and willingness to travel around the Labor Day holiday, but combined with weak industrial and manufacturing activity, and quarter-after-quarter annual GDP growth faltering after the initial rebound rally.”
The above is a quote from Edward Morse, head of commodity research at Citi, which reinforces the image of China recovering from the epidemic more slowly than expected.
However, at the same time, oil imports are on the rise in the same China that everyone looks to when it comes to oil demand. In fact, this year China became the world’s largest importer of crude oil, accounting for 22.4% of the global total.
Reuters reported in April that China’s oil imports in March jumped 22.5% from a year ago to reach their highest levels since June 2020, though growth slowed a month later as the refinery maintenance season got underway.
It would be just as strange to expect constant and steady growth in oil imports from China as it would be strange to expect consistent and steady economic growth from the world power. However, many people seem to be eccentric, and this reduces the risk of oil shortages in the eyes of traders.
This could be dangerous because it could lead to sharp price increases – much sharper than they would be otherwise – if the counterintuitive importance of economic data manages to wane at some point.
The data indicates that the global demand for oil is increasing. The global supply of oil is also increasing but at a much lower rate due to conscious decisions, such as the recent OPEC+ cuts, and outages, such as those in Kurdistan and Alberta.
China is the single driver of oil prices with its demand and everything that can affect it. The International Energy Agency has recognized the country’s demand growth, but the oil market prefers to follow forecasters who, for their own reasons, may present a distorted picture of reality.
Meanwhile, drilling activity in the US posted the sharpest decline since June 2020 last week, but no one recorded that because they were too busy waiting for industrial activity data from China so they could sell more oil. The fact that just because reality doesn’t live up to expectations doesn’t mean it doesn’t matter, it could play a bad joke on the bears later this year.
On the other hand, there is also inflation to consider. With no clear signs of abating in that circle, demand for oil outside of China and Asia could remain subdued, contributing to a more balanced market and reduced risk of sharp price jumps.
If inflation continues to rise in places like the European Union, for example, the demand for oil could drop, although any decline would be limited by oil’s vital role in any economy.
If demand turns out the way the International Energy Agency expects it, all those analysts arguing oil could reach $100 a barrel before the end of this year may turn out to be right.
Posted by Irina Slav from Oilprice.com
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