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Accelerated restructuring of global oil market demand in the coming years
2023/6/27
With the recent rise in oil supply and a marked slowdown in demand growth in developed economies, crude oil benchmark prices have returned to pre-geopolitical crisis levels, and refined petroleum product prices have fallen from historic highs. With the Organization of the Petroleum Exporting Countries and non-OPEC producers consisting of "OPEC+" production cuts leading to a slowdown in global oil supply growth, the global oil market may tighten in the coming months, but in the long term, global reliance on hydrocarbons will be reduced and market pressure will ease in the coming years.
The latest Oil Market Report 2023 from the International Energy Agency (IEA) sees a positive outlook for the oil market in the short term. This is due to two consecutive emergency stock releases by IEA member countries in 2022, easing the tight market situation, in addition, upstream investment in the oil and gas industry in 2023 is expected to reach its highest level since 2015, driving oil and gas capacity growth. Global oil demand growth will slow significantly in the coming years as the energy crisis brings high oil prices and security of supply issues to the fore and the transition to clean energy technologies in various countries is accelerating. The structure of oil demand is also accelerating, from "fuel" to "raw materials" change.
Oil supply capacity growth
In recent years, global oil and gas exploration and development investment growth has been sluggish, and oil and gas companies have been cautious about expanding upstream investment, but against the backdrop of the spreading energy crisis, securing sufficient energy supply has become a top priority for countries, which has directly led to a significant rebound in upstream oil and gas exploration and production spending. 2023 is expected to see significant growth in upstream investment in the global oil and gas industry.
The Oil Market Report 2023 shows that global upstream oil and gas investment is expected to increase by 11% to $528 billion in 2023. The impact of higher investment levels will be partially offset by higher costs due to inflation, but if this level of investment is sustained, it could ensure that forecasted oil and gas demand is met for the period 2022 to 2028. "While net capacity additions will slow from an average of about 1.9 million bpd from 2022 to 2023 to 0.3 million bpd in 2028, capacity additions will remain in line with demand growth over the forecast period." However, several risk factors such as the uncertain global economic environment and the direction of the "OPEC+" decision could affect the market balance in the medium term.
"Oil-producing countries outside the OPEC+ alliance are leading the growth in oil supply capacity. According to the report, non-OPEC+ producers are expected to increase production more strongly over the forecast period, leading the medium-term capacity expansion plan with an incremental supply of 5.1 million barrels per day, dominated by the United States, Brazil and Guyana. The net capacity of "OPEC+" members will increase by 800,000 bpd, with capacity growth mainly coming from Saudi Arabia, the United Arab Emirates and Iraq.
Notably, oil supply growth in the U.S. will slow, declining from 1.1 million bpd in 2022 to 110,000 bpd in 2028. The Middle East's share of world oil supply, on the other hand, will remain on the rise, rising from 30% in 2023 to 32% in 2028, led by Saudi Arabia and the UAE.
Accelerating energy mix transformation
The past few years have seen turbulence in the oil market, which has been repeatedly plunged into crisis by epidemics on the one hand, and a global energy crisis triggered by geopolitical conflicts on the other, leading to a reshuffling of global trade.
The geopolitical crisis has had a profound impact on the global energy system, leading to a shock to global energy supply, with energy shortages and rising energy prices ensuing, highlighting the importance of an orderly transformation of the energy structure. As the energy transition advances, the average annual growth in global oil demand is expected to slow in the coming years, shrinking from 2.4 million barrels per day in 2023 to 0.4 million barrels per day in 2028. A key reason for this is that oil use as a transportation fuel may decline after 2026 as electric vehicles continue to develop, biofuel use increases, and fuel use becomes more efficient.
Under current market and policy conditions, overall oil consumption is expected to continue to increase from 2022 to 2028 due to continued growth in the petrochemical industry and the air travel sector. The report projects that global oil demand will grow by 6% from 2022 to 2028, with global oil demand reaching 105.7 million barrels per day in 2028, an increase of 5.9 million barrels per day from 2022.
The petrochemical sector will remain the main engine of global oil demand growth, with liquefied petroleum gas (LPG), ethane and naphtha accounting for more than 50% of the incremental volume from 2022 to 2028. The aviation sector will expand strongly as countries' borders reopen and air travel returns to normal. Demand for aviation fuel is expected to increase rapidly and significantly by 2 million barrels per day over the forecast period, topping all refined products. Transportation oil demand peaks in 2028 due to improved energy efficiency of fuel products and sales of electric vehicles. From 2024, global demand for gasoline will decline, while diesel will increase by 600,000 bbl/d.
Strong petrochemical demand and consumption growth in emerging economies will offset or even outweigh the contraction in developed economies. Additional policy measures and changes in people's behavior will be needed to achieve the IEA's 2050 net-zero emissions target and reduce total oil demand sooner.
China will play an active role
China is the top importer of crude oil, with crude oil imports set to peak in tandem with peak demand, and it has the capacity base to export large quantities of refined oil products. In the long term, China will remain the world's major supplier and consumer of petroleum and petrochemical products. The healthy development of China's oil market needs the protection of the world market, and the stability of the world oil market also needs China to play an active role.
The Chinese oil market is entering a new phase. According to the report "China's Oil Market Situation and Outlook" released by China National Petroleum Corporation's Institute of Economic and Technical Research, China's oil consumption has entered a medium-low development stage, with an average annual growth rate of 4.4% between 2010 and 2022, which is 2.4 percentage points lower than the growth rate between 2000 and 2010, entering a medium-low growth period. The oil refining industry has entered a period of structural adjustment and optimization from scale expansion, with China's refining capacity increasing from 444 million tons/year to 924 million tons/year from 2005 to 2022, with an average annual growth rate of 4.4%, and the scale of refineries continuing to expand, with the capacity of refineries of 10 million tons and above increasing from 44.5% in 2018 to 54.2% in 2022.
The report expects a gradual recovery in China's oil demand this year. Data show that from January to May 2023, domestic consumption of refined oil products increased by 959 million tons, or 9.3% year-on-year, to 97.4% of 2019 levels, and annual consumption is expected to be about 400 million tons, recovering to levels close to those of 2019. With demand for petrochemical products maintaining a recovery trend and the supply of crude oil resources growing steadily, the petrochemical industry as a whole will bottom out and rebound.
The latest Oil Market Report 2023 from the International Energy Agency (IEA) sees a positive outlook for the oil market in the short term. This is due to two consecutive emergency stock releases by IEA member countries in 2022, easing the tight market situation, in addition, upstream investment in the oil and gas industry in 2023 is expected to reach its highest level since 2015, driving oil and gas capacity growth. Global oil demand growth will slow significantly in the coming years as the energy crisis brings high oil prices and security of supply issues to the fore and the transition to clean energy technologies in various countries is accelerating. The structure of oil demand is also accelerating, from "fuel" to "raw materials" change.
Oil supply capacity growth
In recent years, global oil and gas exploration and development investment growth has been sluggish, and oil and gas companies have been cautious about expanding upstream investment, but against the backdrop of the spreading energy crisis, securing sufficient energy supply has become a top priority for countries, which has directly led to a significant rebound in upstream oil and gas exploration and production spending. 2023 is expected to see significant growth in upstream investment in the global oil and gas industry.
The Oil Market Report 2023 shows that global upstream oil and gas investment is expected to increase by 11% to $528 billion in 2023. The impact of higher investment levels will be partially offset by higher costs due to inflation, but if this level of investment is sustained, it could ensure that forecasted oil and gas demand is met for the period 2022 to 2028. "While net capacity additions will slow from an average of about 1.9 million bpd from 2022 to 2023 to 0.3 million bpd in 2028, capacity additions will remain in line with demand growth over the forecast period." However, several risk factors such as the uncertain global economic environment and the direction of the "OPEC+" decision could affect the market balance in the medium term.
"Oil-producing countries outside the OPEC+ alliance are leading the growth in oil supply capacity. According to the report, non-OPEC+ producers are expected to increase production more strongly over the forecast period, leading the medium-term capacity expansion plan with an incremental supply of 5.1 million barrels per day, dominated by the United States, Brazil and Guyana. The net capacity of "OPEC+" members will increase by 800,000 bpd, with capacity growth mainly coming from Saudi Arabia, the United Arab Emirates and Iraq.
Notably, oil supply growth in the U.S. will slow, declining from 1.1 million bpd in 2022 to 110,000 bpd in 2028. The Middle East's share of world oil supply, on the other hand, will remain on the rise, rising from 30% in 2023 to 32% in 2028, led by Saudi Arabia and the UAE.
Accelerating energy mix transformation
The past few years have seen turbulence in the oil market, which has been repeatedly plunged into crisis by epidemics on the one hand, and a global energy crisis triggered by geopolitical conflicts on the other, leading to a reshuffling of global trade.
The geopolitical crisis has had a profound impact on the global energy system, leading to a shock to global energy supply, with energy shortages and rising energy prices ensuing, highlighting the importance of an orderly transformation of the energy structure. As the energy transition advances, the average annual growth in global oil demand is expected to slow in the coming years, shrinking from 2.4 million barrels per day in 2023 to 0.4 million barrels per day in 2028. A key reason for this is that oil use as a transportation fuel may decline after 2026 as electric vehicles continue to develop, biofuel use increases, and fuel use becomes more efficient.
Under current market and policy conditions, overall oil consumption is expected to continue to increase from 2022 to 2028 due to continued growth in the petrochemical industry and the air travel sector. The report projects that global oil demand will grow by 6% from 2022 to 2028, with global oil demand reaching 105.7 million barrels per day in 2028, an increase of 5.9 million barrels per day from 2022.
The petrochemical sector will remain the main engine of global oil demand growth, with liquefied petroleum gas (LPG), ethane and naphtha accounting for more than 50% of the incremental volume from 2022 to 2028. The aviation sector will expand strongly as countries' borders reopen and air travel returns to normal. Demand for aviation fuel is expected to increase rapidly and significantly by 2 million barrels per day over the forecast period, topping all refined products. Transportation oil demand peaks in 2028 due to improved energy efficiency of fuel products and sales of electric vehicles. From 2024, global demand for gasoline will decline, while diesel will increase by 600,000 bbl/d.
Strong petrochemical demand and consumption growth in emerging economies will offset or even outweigh the contraction in developed economies. Additional policy measures and changes in people's behavior will be needed to achieve the IEA's 2050 net-zero emissions target and reduce total oil demand sooner.
China will play an active role
China is the top importer of crude oil, with crude oil imports set to peak in tandem with peak demand, and it has the capacity base to export large quantities of refined oil products. In the long term, China will remain the world's major supplier and consumer of petroleum and petrochemical products. The healthy development of China's oil market needs the protection of the world market, and the stability of the world oil market also needs China to play an active role.
The Chinese oil market is entering a new phase. According to the report "China's Oil Market Situation and Outlook" released by China National Petroleum Corporation's Institute of Economic and Technical Research, China's oil consumption has entered a medium-low development stage, with an average annual growth rate of 4.4% between 2010 and 2022, which is 2.4 percentage points lower than the growth rate between 2000 and 2010, entering a medium-low growth period. The oil refining industry has entered a period of structural adjustment and optimization from scale expansion, with China's refining capacity increasing from 444 million tons/year to 924 million tons/year from 2005 to 2022, with an average annual growth rate of 4.4%, and the scale of refineries continuing to expand, with the capacity of refineries of 10 million tons and above increasing from 44.5% in 2018 to 54.2% in 2022.
The report expects a gradual recovery in China's oil demand this year. Data show that from January to May 2023, domestic consumption of refined oil products increased by 959 million tons, or 9.3% year-on-year, to 97.4% of 2019 levels, and annual consumption is expected to be about 400 million tons, recovering to levels close to those of 2019. With demand for petrochemical products maintaining a recovery trend and the supply of crude oil resources growing steadily, the petrochemical industry as a whole will bottom out and rebound.
At present, China is accelerating the construction of a new energy system that is safe, efficient, clean, low-carbon and intelligent and diversified with the complementary advantages and integrated development of traditional and new energy sources. The low-carbon transformation in the transportation sector will drive the consumption of refined oil to reach the peak. At the same time, China's chemical oil consumption will maintain rapid growth. The future demand for new chemical materials in the field of new energy will grow rapidly, and the market of new materials such as ultra-high molecular weight polyethylene, carbon fiber, EVA and POE will usher in a period of development opportunities.
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