Despite the recent rise in crude oil prices, there are still geopolitical concerns that are weighing down on the supply side. The ongoing war in Ukraine will continue to affect oil markets in 2023. Meanwhile, Russia’s oil production has been resilient despite the sanctions.
The OPEC+ group of countries will meet on December 4 to decide on an output cut of two million barrels a day, which could be further cut by up to 500,000 barrels a day if needed. The group is expected to also review economic weakness in China. The International Energy Agency estimates that demand for oil was 30% lower in the last year, which is the lowest it has been in almost 30 years.
This has caused a slowdown in global demand for oil. Oil demand was estimated to have grown by more than three MMbbls a day in 2022, but the growth rate is expected to fall by more than half in the coming years. The IEA warned that revenues would likely fall further. However, technological advances are decreasing the cost of renewable energy sources. This could reduce the tendency for an oil market bubble.
China is the world’s largest importer of crude oil. However, its zero-Covid policy has negatively impacted the energy sector. Earlier this month, China’s president Xi Jinping announced that he would impose strict curbs on oil production. This has sparked resentment among Chinese citizens. The country’s stock markets were hit as investors saw the potential for the policy to hurt the economy. Protests against the policy were seen in major Chinese cities over the weekend.
The EIA’s weekly oil inventory report showed a draw of 1.7 million barrels in crude oil and a slight increase in distillates. The inventory also showed a small decline in gasoline stocks. The decline in crude oil supplies was attributed to a small draw in production, while the increase in distillates was the result of a smaller draw in exports.
Analysts estimate that China’s economy will begin to recover in 2023. The IEA has warned that revenues are likely to drop further, as the country’s investments in fossil fuel projects continue to decline. This is a result of the waning investor appetite for fossil fuel projects.
This could lead to a structural decline in the fossil fuel industry. The US is the largest buyer of crude oil, but it is not an exporter. It will be important to determine whether the country’s economy can weather this crisis on its sovereign wealth funds. A strong dollar discourages importers from buying higher-priced crude oil. A stronger US will also make oil more expensive in other currencies.
The price of gas is closely tied to the fundamentals of the energy industry. The IEA’s most recent report predicted that demand for gas will rise to a level of 61 billion cubic feet per day in 2023. It is expected that about 50% of the demand will come from China. The rest will come from Europe and Japan.