OPEC has hiked its forecast for global oil demand this year, its first upward revision for months.
In its latest monthly report, the cartel predicts oil demand will rise this year by 2.32m barrels per day (bpd), or 2.3 per cent, following China’s relaxation of Zero-Covid restrictions.
Meanwhile, slashed supply forecasts for Russia and other non-OPEC producers reflect a tighter oil market.
Tighter supply and demand balance could prop up oil prices – which have held relatively steady since December at around $86 (£70) per barrel.
OPEC had kept its 2023 demand growth forecast stable for the past two months after a series of downgrades following an economic downturn and growing expectations of a recession.
“Key to oil demand growth in 2023 will be the return of China from its mandated mobility restrictions and the effect this will have on the country, the region and the world,” OPEC said in the report.
OPEC expects Chinese demand to rise 590,000 bpd day in 2023, up from last month’s forecast of 510,000 bpd.
China’s oil consumption dropped for the first time in years in 2022, restrained by its COVID containment measures.
Another key upside factor was the likelihood that the US Federal Reserve will create a soft landing for the US economy and further commodity price weakness, OPEC argued.
Nevertheless, various potentially negative factors persist.
For instance, it recognised that a relative slowdown remained evident and cited high inflation and expected further increases to interest rates.
“Downside risks are apparent and may include further geopolitical tensions in eastern Europe, China’s ongoing domestic challenges amid the pandemic, and potential spillovers from China’s still fragile real estate sector,” OPEC said.
OPEC also lowered its forecast of 2023 growth in supply from producers outside the group to 1.4m bpd, from 1.5m bpd last month, citing lower production expectations from Russia and the US.
The report also showed that OPEC’s crude oil production fell in January after the wider OPEC+ alliance – which includes Russia – pledged output cuts to support the market and prop up prices.
For November last year, with prices weakening, OPEC agreed to a 2m bpd reduction in its output target – the largest since the early days of the pandemic in 2020.
OPEC’s share of the cut is 1.27m bpd.