IEA tentatively raises 2022 oil demand on China boost, warns on diesel supply

Quantum Commodity Intelligence – The IEA lifted its oil demand forecast for this year on an upward revision to Chinese consumption, but warned on a swathe of headwinds with tight diesel supply a drag on economic output in the months ahead.

The International Energy Administration (IEA) raised its 2022 global oil demand forecast by 180,000 bpd to 2.11 million bpd in its November oil market report released Tuesday.

Driven largely by an upwards revision to Chinese demand, persistently sluggish growth in the same economy trimmed the IEA's 2023 forecast by 40,000 bpd to 1.61 million bpd.

Oil inventories in OECD economies – including government and industry stocks - dropped below 4 million bpd for the first time since 2004, the IEA said, with distillates at their lowest in several decades.

Tight distillate supply will remain a drag on oil demand in the months ahead, with high diesel prices feeding into inflation and weigh on its role as a driver for economic growth.

A ban on Russian oil exports and a proposed price cap will add further pressure on global oil balances, which were already strained before the Ukraine war because of the loss of 3.5 million bpd of global refinery capacity since the pandemic.

A 15% fall in Russian oil supply next year will be compensated by a growth in non-OPEC supply, including an extra 1 million bpd from the US, resulting in 2023 supply growth of 740,000 bpd.

The decision by OPEC+ to cut output from this month should remove around 1 million bpd of global oil supply from the market by the end of the year, but the EIA maintained its 2022 forecast of 4.6 million bpd of supply growth.