IEA and OPEC have different oil price forecasts for next year

The International Energy Agency (IEA) released its first forecast of oil market supply and demand for 2023 on June 15. Sources within OPEC have leaked information of its demand forecast to be released in July. But according to current news, the two sides seem to be diverging in their views on the oil market in 2023, especially on demand.

IEA: Demand continues to outstrip supply

The IEA warns that oil demand will continue to outpace supply growth in 2023, with world oil demand likely to grow by 2.2 million barrels per day to 101.6 million barrels per day, exceeding pre-pandemic levels. The IEA estimates that oil demand will grow by about 1.8 million barrels per day this year.

In its first forecast of oil supply and demand for 2023, the IEA believes that most of the growth in demand next year will come from China and other developing economies, especially as the rebound in Chinese consumption is likely to be delayed until next year under the dynamic clearing of new crowns.

Unlike 2022, when global growth will be led by the members of Organization for Economic Co-operation and Development (OECD), 80% of global growth in 2023 will be driven by non-OECD economies.

On the supply side, importers will face increasing difficulties in accessing oil. The IEA noted that non-OPEC+ countries will lead the increase in global oil supply this year, with an incremental production of 1.9 million barrels per day. But oil supply increment could fall to 1.8 million barrels per day in 2023 due to lower production of OPEC+ member Russia as a result of embargoes and sanctions. However, if Libya is able to resume production quickly, OPEC+ production may increase by 2.6 million barrels per day for the rest of the year.

Global refining capacity will expand by 1.0 million barrels per day and 1.6 million barrels per day this year and next, driving production increases of 2.3 million barrels per day and 1.9 million barrels per day respectively. But commodity markets will remain tight, with persistent shortages of individual products, particularly in diesel and kerosene, due to uneven demand growth and constraints in the refining system.

However, global inventories are slowly picking up from preliminary data in May, with total OECD oil stocks rising by 6 million barrels. Global oil stocks also increased by 77 million barrels in April, thanks to the release of nearly 1 million barrels per day of strategic reserves. But the OECD's industrial stocks are still nearly 3 million barrels below the average for 2017-2021.

Meanwhile, oil prices are still climbing. Starting from June 6, WTI and Brent Crude Futures rose again to $120 a barrel and fluctuated around that price.

The IEA warns that middle distillate prices could hit a new record due to limited supply from the middle distillate industries, such as diesel and aviation fuel oil, and pass it on to other products and make the following summer travel more painful. And the ongoing supply-demand imbalance will continue to support the price of oil and petroleum products next year.

OPEC: Oil demand is likely to be disrupted.

However, OPEC and the IEA do not share the same opinion. According to OPEC representatives and industry sources, world oil demand growth will slow in 2023 as soaring crude and fuel prices push up inflation and drag down economic recovery.

OPEC said fuel use had rebounded this year to record prices, but high prices had eroded forecasts for fuel growth in 2022 and fueled expectations of a 2023 in demand growth.

OPEC expects global demand to grow by 2 million barrels per day or less in 2023, up just 2 percent, according to the sources. But growth in 2022 is expected to be 3.36 million barrels per day.

The other two OPEC representatives said that demand destruction could have an impact on oil use in the coming months. But one of them acknowledged that there were no signs of demand disruption in the current US gasoline demand data.

An industry participant who is not part of the IEA or OPEC is also inclined to subscribe to OPEC’s view of a slowdown in oil demand next year, predicting demand growth of 2 million barrels per day or less in 2023, down from 2.6 million barrels per day growth in 2022.

“Crude oil prices at $120 a barrel are causing demand disruption, and it’s already happening,” he said.