Oil price dip ignores Chinese demand and imminent supply crunch: IEA

The ongoing pressure in oil prices neglects an accelerating demand outlook and looming supply tightness, the Paris-based International Energy Agency warned on Tuesday. 

Financial turbulence in the banking sector after the spring collapse of several U.S. and European banks steered investors away from historically riskier assets, such as oil. Prices fleetingly gained ground after a number of OPEC+ members announced an additional 1.6 million barrels per day of voluntary cuts at the start of April — only to rapidly surrender these gains, cooling analyst expectations of prices at $100 per barrel.

Ice Brent futures with July expiry were trading at $75.14 per barrel at 12 p.m. London time, down 9 cents per barrel from Monday’s close.

Persisting concerns over “muted industrial activity and higher interest rates … combined have led to recessionary scenarios gaining traction and worries of a downward shift in the oil demand growth,” the IEA said in its latest monthly Oil Market Report. The agency highlighted that the recent price declines reflect a growing rift between investor sentiment and a tightening supply-demand picture.

“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d,” the agency said, revising its global oil demand forecast by 200,000 barrels per day from its previous projection, to reach 102 million barrels per day in 2023.

The IEA expects demand to start exceeding supply as of this quarter, for the first time since early 2022, with this projected deficit set to deepen to nearly 2 million barrels per day by the end of the year.

The world’s largest crude oil importer, China, will account for nearly 60% of global demand growth in 2023, the IEA anticipates, after Bejing’s consumption set its all-time record of 16 million barrels per day in March.

“Record demand in China, India and the Middle East at the start of the year more than offset lacklustre industrial activity and oil use in the OECD,” the IEA said.

Chinese crude oil purchases were curtailed by spartan zero-Covid-19 restrictions that were in place for the majority of last year, with analysts widely expecting Beijing’s economic reopening to kickstart a surge in oil prices.