Opec raises China oil demand forecast for 2023 on economic turnaround hopes

Opec has again raised its 2023 oil demand growth forecast for China, the world’s largest crude importer, and said the recent economic slowdown in the country may persist until the middle of the year.

Global oil demand is projected to grow by 2.3 million barrels per day to 101.9 million bpd this year, the group said in its monthly oil market report on Tuesday.

“As it seems, China's growth momentum has decelerated in recent months following a robust initial rebound,” Opec said.

“China's post-reopening recovery is forecast to continue. Despite the recent slowdown in activities … key growth drivers could accelerate China's recovery in the second half of the year and beyond.”

Economic growth in the Asian country has been largely uneven since it lifted Covid-19 restrictions earlier this year.

China’s exports slumped 7.5 per cent annually in May, its biggest fall since January, data from the Customs Bureau showed last week. Opec said it expects crude demand to grow by 2.4 million bpd in the second half of 2023. Oil demand in the 38 member countries of the Organisation for Economic Co-operation and Development is estimated to rise by 200,000 bpd, driven mostly by the US and the Asia-Pacific region, the group said.

However, crude demand in Europe will be “weak” as slugging economic activity and supply chain bottlenecks weigh on diesel consumption, Opec said.

Meanwhile, non-Opec crude supply is projected to grow by 700,000 bpd in the second half of the year, following an estimated rise of 2.2 million bpd in the first half.

Opec’s production is forecast to grow by 50,000 bpd to 5.44 million bpd this year, it said.

On June 4, top crude exporter Saudi Arabia announced a unilateral production cut of a million bpd for July and said that an extension could be possible.

The Opec+ group of 23 oil-producing countries has extended its current production cuts until the end of 2024.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a 2 million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.

Brent crude, the benchmark for two thirds of the world’s oil, is down by about 4 per cent since Opec announced its new output policy this month as weak economic data from the US and China stoked demand concerns.

Brent was trading 2.03 per cent higher at $73.30 a barrel at 2.39pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was up 1.77 per cent at $68.31 a barrel.

“There are rising uncertainties regarding economic growth in the [second half of 2023] amid ongoing high inflation, already elevated key interest rates and a tight labour market,” Opec said.

“Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe might be resolved.”

Energy investors are keeping an eye on US inflation data that comes out on Tuesday and the US Federal Reserve's interest rate decision on Wednesday.

The recent debt ceiling deal in America and positive economic data have lifted hopes that the central bank will pause its rate increase programme as officials meet today and tomorrow.

Higher interest rates could slow the global economy and dampen crude demand. The Fed raised interest rates by a combined 500 basis points since it started increasing rates in March 2022.

Analysts expect the US central bank to pause its tightening cycle this week and then raise rates for the eleventh time when it meets in July.