JPX Energy Market Updates（Dec.19, 2022）
In today’s video, I would like make a brief introduction of the summary and outlook of the oil market in 2022 and 2023 to help you understand the crude oil market landscape as this year of turmoil and volatility draws to a close.
On the demand side, world oil markets are rebalancing after the Covid-19 crisis spurred an unprecedented collapse in demand in 2020. According to the IEA, by the end of 2022, oil consumption demand in Europe and the United States has basically recovered to the pre-pandemic level, Asia has also recovered by more than half. Looking ahead to 2023, oil consumption will continue to grow, but the overall increase will slow down. The energy crisis caused by the Russia-Ukraine conflict has had a profound impact on the European economy, while high inflation remains a threat to the U.S. economy. Demand growth in the west is expected to be largely stagnant next year. At the same time, Asia will dominate demand growth next year, with China and India providing solid support as consumption drivers shift eastward next year.
While demand growth comes to a standstill in all major products, the only exception to this lacklustre outlook is jet fuel. The recovery in jet fuel consumption has already begun to gather pace during 2022, with the number of daily commercial flights globally topping 100,000 at one point during this summer's peak travel season, according to Radarbox, that’s a 87 percent of the 2019 level and a 27 percent year-on-year increase.
On the supply side, global oil supply increased by 4.7 million b/d to 100 million b/d in 2022, as of October, global supply levels had roughly recovered to pre-pandemic levels. OPEC+ members contributed most of the increase, with Saudi Arabia increasing its production by 1.6 million b/d; The U.S. increased production by around 1.2 million b/d as producers continue to focus on generating cash flow for shareholder returns, supply chain disruptions and rising costs due to inflation have kept U.S. shale oil production growth at a slower rate, with production still not exceeding its 2019 peak of around 13 million bpd despite the rally in oil prices.
In addition, the U.S. and other IEA members have contributed an average of about 1 million b/d of oil supply to the market through selling SPR since March 2022. At the end of this year, the US announced its first plans to buy back reserves, the shift from selling to buying reserves next year will also tighten supply.
Global oil supply is expected to increase by 800,000 b/d next year, significantly slower than this year. The increase is mainly contributed by non-OPEC + countries, the U.S. will add about 1 million b/d. OPEC+ supply excluding Russia will only increase about 300,000 b/d. With the European embargo on Russia oil product coming into effect on February 5th, Russian refiners could be forced to cut production, with major international agencies forecasting a decline of around 1.4 million bpd next year.
On the refining sector, diesel has been the core of refining industry in 2022, a contraction in global refinery capacity and lower levels of Chinese exports together with an increase in consumption contributed to a continuous fall of diesel inventories. Since the outbreak of Russia Ukraine war, diesel crack spread soared to above $70 a barrel before eased to 40$ a barrel, global refining margins increased significantly. We expect diesel crack spreads may get some support at the beginning of the year amid Russian oil product embargo. However, supply from China and the Middle East may continue to rise, supply from the United States will remain high, diesel crack spread may hardly exceed the peak level in 2022.
Refiners will continue to enjoy relatively high profits from middle distillates where jet fuel and diesel are located in 2023, however, production margins for other oil products may be squeezed by a passive increase in supply.
According to the balance sheets of IEA EIA and OPEC, world oil demand will recover to around 101 million bpd, demand for OPEC crude remain stable, averaging between 29-30 million bpd as Non-OPEC supply increases. Given the difficulty in increasing production in some OPEC countries, we believe it will be difficult for OPEC to produce more than 30 million barrels per under the present production mechanism unless Iranian crude returns to the market under a new deal, as a result, the market may remain tightly balanced or slightly under supply next year.
The spread between Brent and Dubai crude oil has remained high this year, the spread reflect tighter supply and demand conditions in Europe than Asia but also the difference between sweet and sour crude quality amid high natural gas prices. Next year, with demand from Asia rising and OPEC maintaining production cuts, Asian markets could tighten again and the Brent Dubai spread may trade at a lower price range.