A 3D-printed oil pump jack is seen in front of a displayed stock graph in this illustration picture. — Reuters
THE signs are obvious, and even the data, to a certain extent, offers a narrative.
With nearly half of the year gone, there are enough reasons to believe that Asian oil demand is set to surpass pre-pandemic levels in 2023 and contribute to the bulk of global consumption growth.
With China providing the much-needed impetus to consumption growth after the gradual easing of pandemic-related lockdowns, for now, demand looks robust enough to offset any negative impact of the global financial and banking turmoil on Asia's economies.
"Asia is likely to account for three quarters of the global oil demand growth in 2023 and more than half in 2024. Asian oil demand will be some 2.7% above 2019 levels in 2023, higher than the global average of 0.6%," a recent S&P Global Commodity Insights research report said.
In 2023, Asia could see its oil demand grow by as much as 1.5 million b/d, sharply up from less than 400,000 b/d in 2022. And China is set to account for more than half of that regional growth. On the other hand, Southeast Asia and South Asia are expected to contribute 16% and 18%, respectively.
This is a strong indicator that the growth story will be largely driven by Asia, as overall global oil demand growth is expected at be only 2.1 million b/d in 2023, with another 1.9 million b/d of growth expected in 2024, according to S&P Global.
One of the brightest spots for Asian oil demand growth in 2023 will be the revival in jet fuel demand, led by the easing of travel restrictions in China. Based on high frequency data from AirNav Radar Box, China's domestic air traffic in April was 26% higher than pre-pandemic levels, up by 10 percentage points from the average in March. Although international travel is still down 35% from pre-COVID-19 levels, it rose 11% from the average level in March.
So far, Asia has witnessed only a limited impact from the recent banking crisis. As a result, there is strong belief among market watchers that the trend of high growth will likely spill over to 2024 when Asian oil demand is expected to grow by 1.1 million b/d. That would be more than half of the forecast for global demand growth for next year.
Support for prices
Soon after the OPEC+ production cut announcement, oil prices fell over April from near $90/b to near $75/b or below at the beginning of May amid concerns over the health of the global economy. But supply fundamentals are already showing signs of tightening from June through September on peak seasonal demand and sharply falling oil inventory levels.
That is expected to push Dated Brent prices up to near $90/b in Q3 before easing to around $86/b in Q4, according to S&P Global Commodity Insights.
Speakers at the Middle East Petroleum & Gas Conference by S&P Global Commodity Insights held in late May also subscribed to the view that oil markets are set to tighten significantly in the second half of 2023, as a drawdown in floating oil stocks and rising Asian demand are set to put pressure on balances.
As a result, the combination of China’s recovery, a rebound in the aviation sector and the OPEC+ alliance continuing with deep production cuts will take away the perceived excess supplies that are currently available.
Refiners chart out strategy
Refiners are expected to lift crude runs by 1.6 million b/d in 2023 to meet the East of Suez-driven rise in demand. Incremental runs from North America, Latin America and Africa will likely get offset by declines in Europe and former Soviet Union countries. Asian refinery runs are expected to be 1.8% higher than 2019 levels in 2023. Last year, crude runs were 1.8% below 2019 levels.
Asian refinery utilization rates are also expected to improve, rising to 78.7% in 2023, before climbing further to 79.2% in 2024, but still below the pre-COVID average of around 81%, as more refining capacity gets added in China and India. Asia is expected to account for nearly 69% and 57% of global incremental runs in 2023 and 2024, respectively, up from about 15% in 2022, S&P Global data showed.
As for oil supply, global growth is projected at 2 million b/d in 2023 and 2.3 million b/d in 2024. The numbers are slightly lower than expected earlier due to the production revisions announced by OPEC+ in early April.
The fact that Russian waterborne exports have been increasing in recent months will be music to the ears of buyers in China and India. As of now, nearly all Russian crude is directed toward Asia. Similarly, most Russian oil products are also bound for Asia as well as the Middle East. These new trade patterns have led to more long voyages and fewer short haul trades.
According to S&P Global, India's imports of crude oil from Russia have experienced a remarkable surge, reaching approximately 36% of the oil import basket in the first five months of this year, a significant increase from the 5% recorded a year ago. Furthermore, the volume of Russian barrels imported has reached a new peak of 1.74 million barrels per day, according to S&P Global data.
And in China, Russian crude import volumes from January to April this year were up 27% year on year at 1.98 million b/d.
As a result, Middle Eastern suppliers find it easier to allocate the entire volume to other key Asian buyers, such as South Korea and Japan.
Therefore, to sum it up, Asia for now has enough breathing space on the supply side. But any further production cuts by OPEC+ could potentially alter the balances.
Sambit Mohanty is Asia Energy Analyst at S&P Global commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analyzing commodities and energy trends in the region. He holds a Master’s Degree in Applied Economics.
