Olivia Woods
The IEA’s recent market report suggests that a recovering Chinese economy combined with OPEC reductions in production may result in a global oil shortage.
Oil investors would be pleased to hear the news, however, those looking for cheaper gas prices will be disappointed.
The International Energy Agency predicted that world demand will rise by two million barrels per day in 2023, reaching a record 101.9 million barrels per day (mb/d), mainly due to increased demand from developing countries, China contributing to half of the increase.
The agency forecasted that by 2023, global oil output will increase to 101.1 mb/d, which might lead to a shortage of 800,000 barrels a day.
“Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge,” the IEA stated. “The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices, especially in emerging and developing economies.”
Before OPEC’s April 2 announcement that it would reduce output by 1.16 mb/d, oil was in an oversupply condition. The IEA predicted that Russia’s production cuts of 500,000 barrels per day, announced in March, would be maintained throughout the year.
The IEA speculated the oil cartel was seeking to support a higher price by cutting production, and their prediction appears to have come true. Since April 2, the cost of West Texas Intermediate has increased by 10%, to US$82.81, while the price for Canada’s heavy crude Western Canada Select has increased by 9%.
“Rising global oil stocks (earlier in 2023) may have also contributed to the decision,” the IEA added.
However, oil prices have not yet skyrocketed like they did as the world recovered from the COVID-19 pandemic.
In Jan 2020, the price of a litre of gas in Canada was recorded at $1.14. However, by June 2022, Statistics Canada reported that the amount had significantly increased to $2.07.
According to the agency’s consumer price index data, energy prices were a major contributor to inflation, which peaked at 8.1% in June 2022. The March data from Statistics Canada will be released on April 18.
Canada’s energy sector may benefit from China’s rising oil demand.
Executives from major oilsands companies said last week at an energy conference that the nearly finished Trans Mountain expansion presents a chance for Canada to send additional energy to Asia.
“Being able to send our barrels into more markets is a big opportunity for Canada,” said Canadian Natural Resources Ltd. chief financial officer Mark Stainthorpe at the Bank of Montreal-Canadian Association of Petroleum Producers conference.
Participants at the meeting agreed that the growth may boost productivity.
The International Energy Agency (IEA) predicts that Canada will produce “a record high 5.85 mb/d of oil in 2023, 100 kb/d higher than the 5.75 mb/d it produced in 2022.”
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