Global oil markets are in an enormous surplus than expected this quarter. The International Energy Agency (IEA) reports this in a new report. However, according to the agency, oil demand is still limited, despite China’s attempt to reopen the economy after the release of strict corona policies.
Supply will exceed consumption by about 1 million barrels per day in the first three months of the year, the IEA said. Although the organization has slightly revised its outlook for China following the easing of corona restrictions, it does not expect annual growth in oil demand in China to return until the second quarter. “As China faces a challenging winter, the reopening path will undoubtedly be bumpy and drawn out,” the IEA warned.
Oil prices have had a difficult start to the year. This is because the relaxation of corona restrictions in China has caused a new wave of virus infections. This slows down efforts to restart the economy. However, when the Chinese economy runs at full speed again, the country’s oil demand will also increase considerably.
Oil stocks are also increasing because Russia manages to maintain its production and export of oil despite Western sanctions. The country’s oil production remained stable at around 11 million barrels per day in December, despite the European Union’s ban on Russian crude oil imports. The IEA does expect Russian oil production to decline later this quarter. However, the slow recovery in oil demand in the first half of 2023 indicates that inventories will continue to grow, according to the organization.
The agency predicts that global oil markets will tighten in the year’s second half as Chinese consumption increases and sanctions against Moscow take effect. As a result, Russian production could fall by 1.5 million barrels per day by the end of March, according to the IEA.
Global oil consumption remains on track to grow by 1.9 million barrels per day this year to a record average of 101.7 million barrels per day, according to the IEA. About half of the growth comes from China.