According to the Executive Director of the IEA, the most important factor for oil prices this year will be China’s economy and its oil demand.
China is expected to account for 60% of global oil demand growth this year, which the IEA currently sees at more than 2 million bpd.
The IEA expects an oil supply deficit in the second half of this year and believes Saudi Arabia’s recent production cut will only add to upward pressure on oil prices.
China’s economy and oil demand will be the single most important driver of oil prices this year, even if OPEC+ manages to push prices upwards, according to Fatih Birol, the Executive Director of the International Energy Agency (IEA).
“There are many uncertainties, as usual, when it comes to the oil market, and if I have to pick the most important one, it’s China,” Birol told Bloomberg TV in an interview on Wednesday.
“If the Chinese economy weakens, or growth is much lower than many international economic institutions believe, of course, this can lead to bearish sentiment,” the IEA’s top executive said, noting that China is expected to account for 60% of this year’s global oil demand growth, which the IEA currently sees at more than 2 million barrels per day (bpd) compared to 2022.
On Sunday, the OPEC+ producers decided to keep the current cuts until the end of 2024, while OPEC’s top producer and the world’s largest crude oil exporter, Saudi Arabia, said it would voluntarily reduce its production by 1 million bpd in July, to around 9 million bpd. The Saudi cut could be extended beyond July, Saudi Energy Minister Prince Abdulaziz bin Salman said.
Those cuts will lead to tighter oil market balances in the second half of the year if China’s economy and oil demand do not weaken, Birol told Bloomberg.
Earlier this week, Birol was quoted as saying that oil prices were now a lot more likely to rise after OPEC+ extended the cuts into 2024 and Saudi Arabia announced the additional reduction of 1 million bpd for July.
The IEA has been warning this year that supply cuts risk increasing oil and energy prices at a time of heightened uncertainty.
After the surprise OPEC+ cuts announced in early April, the IEA said in its Oil Market Report for the month that the “surprise OPEC+ supply cuts announced on 2 April risk aggravating an expected oil supply deficit in 2H23 and boosting oil prices at a time of heightened economic uncertainty, even as industrial activity slows in the world’s largest economies and production growth outside the alliance appears robust.