In its monthly report released Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) raised its forecast for global oil demand growth in 2023. This upward revision, the first in several months, is due to the lifting of COVID-19-related restrictions in China, as well as an expected drop in production in Russia and other non-OPEC producers.
2.3% increase in demand in 2023
OPEC expects global oil demand to increase by 2.32 million barrels per day (bpd) in 2023, or 2.3% growth. This projection is 100,000 bpd higher than last month’s forecast.
This could lead to an increase in oil prices, which have been relatively stable since December at just under $86 per barrel. OPEC had held its 2023 demand growth forecast steady for the past two months, after a series of downward revisions due to worsening economic conditions.
According to the report, China’s return is crucial for oil demand growth in 2023. OPEC expects Chinese demand growth of 590,000 bpd in 2023, up from a forecast of 510,000 bpd last month. China’s oil consumption fell for the first time in several years in 2022, hampered by COVID-related containment measures.
The economic outlook is positive, but…
The OPEC report is optimistic about the economic outlook, revising its global growth forecast for 2023 upward to 2.6% from 2.5% last month. However, OPEC pointed to a continued relative slowdown, as well as high inflation and expected rising interest rates. Other positive factors are the expected easing of the U.S. economy by the U.S. Federal Reserve and further weakness in commodity prices, OPEC said, although various potentially negative factors remain.
Production cuts
The report also shows that OPEC crude oil production fell in January after the broader OPEC+ alliance pledged to cut production to support the market. In November last year, as prices weakened, OPEC+ agreed to a 2 million bpd reduction in its production target – the largest since the pandemic began in 2020. OPEC’s share of the reduction is 1.27 million bpd.
In the report, OPEC, which was already forecasting a drop in Russian production in 2023, said Russian production is now expected to fall by 900,000 barrels per day this year, compared to a drop of 850,000 barrels per day forecast last month. With lower non-OPEC supply and higher demand growth, the report increased its estimate of the amount of crude OPEC must pump in 2023 to balance the market by 200,000 barrels per day to 29.4 million barrels per day, about 500,000 barrels more than OPEC produced in January.
