A resurgent Chinese economy will bolster consumption, while tighter sanctions on Russia will curtail oil output, the agency forecast in its latest monthly report. The OPEC+ coalition of producers would need to deplete its spare production capacity to historically low levels to satisfy demand, it said.
The estimates from the IEA suggest little prospect of respite for households from high energy prices. Crude has climbed more than 50% this year to trade near $120 a barrel in London, as supplies fail to satisfy the post-pandemic rebound in fuel demand.
Rampant inflation is battering the global economy, raising expectations of sharp interest rate increases and a possible recession. The political urgency to tackle the problem was underscored by Tuesday’s announcement that President Joe Biden will travel to Saudi Arabia next month in an effort to stabilize relations with the world’s biggest crude exporter.
“Global oil supply may struggle to keep pace with demand next year, as tighter sanctions force Russia to shut in more wells and a number of producers bump up against capacity constraints,” the Paris-based IEA said on Wednesday.
In 2023, growth in global demand is set to accelerate to 2.2 million barrels a day, while non-OPEC+ supplies will expand by 1.9 million a day. World consumption will average 101.6 million barrels a day, surpassing pre-pandemic levels, the IEA said.
Russian output will come under severe strain as a partial European Union embargo takes effect, slumping by 3 million barrels a day by the start of next year to 8.7 million a day, the agency said. Still, the IEA noted that the country’s output has so far proved surprisingly resilient, increasing in May despite its initial predictions of a sharp drop.
To try and keep the market in equilibrium next year, the Organization of Petroleum Exporting Countries and its partners would need to open the taps even wider. But the coalition’s reserves of idle output are already depleted and largely confined to Middle East heavyweights Saudi Arabia and the United Arab Emirates. By the end of 2023, the group’s spare capacity could drop to a historic low of just 1.5 million barrels a day, the IEA said.
“The market is looking stretched,” Toril Bosoni, head of the IEA’s markets and industry division, said in a Bloomberg Television interview. “As we flip into 2023, as OPEC+ bumps up against their capacity constraints, oil demand recovers — especially for China.”
For the rest of this year, motorists may need to brace for “more pain at the pump just as pent-up demand is unleashed during the peak driving and summer cooling season,” the agency warned.
The recent tightening in global crude markets — which has reduced inventories for seven straight quarters — should abate as high prices rein in demand and lockdown measures hinder China, which is experiencing its first decline in demand growth this century.
“Higher prices, the weaker economic outlook is denting oil demand,” Bosoni said. “We’re seeing signs of a slowdown in transport fuels and in 2022 we’re seeing oil supplies rising, being able to meet that demand mostly.”
Yet those trends may bring little relief for US consumers, who are already grappling with record gasoline prices of $5 a gallon. A shortage of refining capacity is limiting the availability of products, with supplies of diesel and kerosene — used for aviation — particularly constrained, the IEA said.