Global oil supply will “struggle” to meet still rising demand next year, the International Energy Agency said, despite early signs that record prices are starting to weigh on consumption.
In its first 2023 forecast, the Paris-based energy think-tank, which advises major oil-consuming nations on energy policy, on Wednesday predicted that demand next year would grow by 2.2mn barrels a day to 101.6mn b/d, driven by developing countries.
While the IEA expected the US to significantly increase domestic production in 2022 and 2023, members of the Opec producers’ group and its allies, including Russia, would find it harder to keep increasing output to meet rising consumption, it said in its monthly report.
“Global oil supply may struggle to keep pace with demand next year, as tighter sanctions force Russia to shut in more wells and a number of producers bump up against capacity constraints.”
The IEA expects Russian output to fall by close to 3mn b/d this year as more sanctions kick in, resulting in a total drop in Opec+ production of 520,000 b/d in 2023.
Oil prices have hit near-record levels in the past six months as the disruption to energy flows due to the war in Ukraine exacerbates supply problems due to under-investment and rebounding demand after the Covid-19 emergency.
Brent, the international benchmark, touched a 14-year high of $139 a barrel in March shortly after Russia’s invasion. Brent was trading at $120.67 a barrel on Wednesday, its highest point since 2012.
While the 1.8mn b/d growth in global oil demand this year is being driven by increased consumption in advanced economies as pandemic-related curbs are lifted, 80 per cent of next year’s growth will come from non-OECD countries, according to the IEA.
Callum Macpherson, head of commodities at Investec, said the IEA’s supply and demand forecasts implied oil prices would increase further next year, adding that rising prices would have to eventually curb demand.
“Perhaps another way to look at the IEA’s forecasts is to ask what price oil needs to reach to prevent demand growing by 2.2mn b/d next year?” he added.
The IEA anticipates a tight market in 2023 even though “sky-high product prices” have already cut demand for petrol and diesel in advanced economies in April and May.
“Preliminary data point to an almost instant demand cutback in response to the price surge,” it said.
In the US, where prices have reached $5 a gallon for the first time, deliveries of petrol were down 2.7 per cent in May compared with last year, according to data from the US Energy Information Administration.
In response to US pressure, Opec+, led by Saudi Arabia, this month agreed to accelerate oil production in July and August to help cool the rally, which is threatening to stall the global economy.
Oil prices fell following the announcement but rallied to close higher, with analysts warning that increased output from Saudi Arabia and the United Arab Emirates would cut into the group’s already reduced spare capacity buffer.
The IEA predicted that Opec+ spare production capacity could fall to 2.6mn b/d by the end of the year, “heightening oil market volatility”.
Opec+ members would have to use more of their spare production capacity to prevent a balanced market in 2023 from tipping into deficit, it said. “In that case, spare capacity would shrink to just 1.5mn b/d, the lowest level in recent history.”