China will drive oil demand to record 100m-plus barrels per day, keeping prices elevated

China will drive oil consumption to record levels this year, as the world’s second largest economy reopens following sustained lockdowns – driving oil demand upwards once again.

The International Energy Agency predicts oil demand will grow to 101.9m barrels a day this year, fuelled almost entirely by booming demand in Asia.

This raises expectations oil prices will stay robust through the year – with demand keeping both major benchmarks around $80 per barrel into the first quarter of 2023.

The IEA’s figure is 200,000 barrels a day more than the Paris-based climate agency was forecasting last month.

Overall, it translates into more than two million barrels per day of annual growth this year – with 1.4m barrels driven by Asian nations.

China alone will account for 900,000 barrels a day, the IEA predicts – meaning it makes up nearly half this year’s growth.

After pursuing some of the world’s most restrictive lockdown policies, China U-turned from its “Zero Covid” restrictions late last year.

With air travel ramping up as the pandemic continues to ease, jet fuel will be a key pillar in the global demand rebound – which will be significantly boosted by the return of international tourism from China.

The climate agency’s projections are just short of rival OPEC’s forecast of 2.3m barrels per day growth, outlined in its own report yesterday.

The IEA warned restrained OPEC+ production – the extended alliance which includes Russia – could mean a supply deficit in the second half of the year, alongside shut in from Russian output of 1m barrels per day.

While bullish on China, it was uncertain over the affects of sanctions with the EU bringing in sanctions on seaborne oil shipments and price caps on gas and oil products following Russia’s invasion of Ukraine.

“Supply from OPEC+ is projected to contract with Russia pressured by sanctions. World oil supply looks set to exceed demand through the first half of 2023, but the balance could quickly shift to deficit as demand recovers and some Russian output is shut in,” the IEA said.

“It is still unclear how the EU embargo and price cap on oil products that took effect earlier this month will impact trade flows. Our expectation is that some Russian oil will have to be shut in as a result.”