IEA Warns Oil Supply May Not Keep Pace With Demand Next Year

© Reuters.

By Geoffrey Smith

AiVIF.com -- Oil demand is likely to stay ahead of supply growth next year, the International Energy Agency warned on Wednesday, pointing to risks of prolonged disruptions from Russia's invasion of Ukraine and a continued recovery in consumption as the pandemic fades.

In its first projection for the supply-demand balance in 2023, the Paris-based organization said world oil demand is likely to rise by 2.2 million barrels a day on average to 101.6 million b/d, topping its pre-pandemic level. For this year, it expects an average rise in demand of 1.8 million b/d.

Most of the increase in demand next year will come from China and other developing economies, with China, in particular, facing a delayed rebound in consumption due to its policy of reacting quickly and aggressively to stamp out any sign of COVID-19. Lockdowns have caused sharp drops in consumption in key economic hubs such as Shanghai this year.

But importers face increasing difficulties in getting their hands on oil. The IEA also warned that the output of the so-called OPEC+ bloc could fall by as much as 520,000 barrels a day next year, after rising an estimated 2.6 million barrels a day this year.

Much of that decline is due to Russia. Western sanctions have led to oil companies such as Exxon (NYSE:XOM) and Shell (LON:RDSa) exiting their Russian ventures, while oilfield services companies such as Schlumberger (NYSE:SLB) have also withdrawn. In addition, the EU has said it will phase out imports of seaborne Russian crude by the end of the year. That is causing both short and medium-term problems for a Russian oil industry which is configured largely to serve European markets. 

Russia's partners in OPEC also have a dwindling amount of spare capacity: countries such as Iran and Venezuela remain hobbled by U.S. sanctions, while Libya's output has collapsed again in recent weeks as rival factions vie for power across the country.

The IEA also sees U.S. companies continuing a steady rise in their output as confidence returns to the industry that suffered a wave of solvency problems during the pandemic. It sees non-OPEC+ supply rising 1.9 million b/d this year and 1.8 million b/d in 2023, with over half of the 2023 increase coming from the U.S.