Daily Management Review

Wood Mackenzie Report Predicts China Will Account For Approximately 40% Of The Increase In Global Oil Demand In 2023


Wood Mackenzie Report Predicts China Will Account For Approximately 40% Of The Increase In Global Oil Demand In 2023
As the world economy prepares for a slowdown following interest rate hikes, China will account for a sizable portion of the recovery in global oil demand, according to Wood Mackenzie.
The research company claimed in a report released on Thursday that it sees China's reopening as the "single biggest demand driver" for a rebound in oil demand this year. It anticipates that China will account for about 40% of the global recovery in oil demand.
“A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year,” a team of analysts led by vice president Massimo Di Odoardo said in the report, laying out its base case scenario. That means 38.5% of global oil demand recovery would come from China.
On a recent trip to Moscow, Chinese President Xi Jinping pledged economic cooperation with Russian President Vladimir Putin for the upcoming years, notably in the area of energy security. On his visit to Saudi Arabia, Xi emphasized the significance of oil market stability.
With the exception of a severe recession, the company continued, "We forecast Brent climbing from current levels to average $89.40/bbl for 2023." Brent futures were last seen trading at $76.01 a barrel during the Asia session, reflecting lower current pricing for the commodity.
Notwithstanding the World Bank and the International Monetary Fund's warnings of a challenging path ahead, the company is confident about global growth this year.
“We don’t anticipate a global recession this year, despite recent turmoil in global financial markets following the collapse of Silicon Valley Bank,” researchers said in the report. “But we do expect the economic slowdown across western economies to continue for several months before reaching a turning point in the second half of 2023,” they wrote.
Although Wood Mackenzie predicts that private consumption will be the main driver of a rise in China's oil demand, it sees a benefit if economic development were driven by industry.
In its high-growth scenario, the company predicts that Chinese officials will use increased infrastructure expenditure as a means of economic stimulus, which will cause construction to grow by more than 10% in 2023.
In that scenario, China's economy is expected to grow by 7%, according to Wood Mackenzie.
In its most recent round of economic data releases, China reported that its post-Covid year had gotten off to a rather sluggish start, with industrial production for the first few months of the year falling short of market forecasts.
A conservative goal of "about 5%" for the gross domestic product in 2023 was set by the nation's leaders in their most recent government work report, which was published earlier this month.
Yet, Wood Mackenzie noted that China's historical GDP growth "has a track record of outperforming government expectations — in 12 of the past 18 years growth has exceeded the official target," adding that "This is likely another case of under-promising and over-delivering."
“Our China high-growth scenario centers on the economy growing by 7% in 2023 and 5.5% in 2024,” the firm said in the report.
Oxford Economics analysts, however, believe that governmental actions would have the opposite effect. They anticipate that Beijing's emphasis on controlling local government debt issues will limit spending on infrastructure and, as a result, the demand for commodities.
“Higher planned transfers from the central government to local governments ... will likely mean that local government financing vehicles, used to traditionally fund off-budget local infrastructure spending, will cease to be a main financing support,” they said in a note.
“Alongside a private consumption-driven growth rebound, this naturally means we will very likely see a less commodity-intensive recovery this year,” they added.