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» » IEA warns of oil supply shortage as rebounding Chinese economy sets demand on course for record - Financial Post

IEA warns of oil supply shortage as rebounding Chinese economy sets demand on course for record - Financial Post

Agency forecasts Canada to produce record amount of oil in 2023

A rebounding Chinese economy and cuts by the Organization of the Petroleum Exporting Countries could lead to a global oil supply shortage, says the International Energy Agency.
A rebounding Chinese economy and cuts by the Organization of the Petroleum Exporting Countries could lead to a global oil supply shortage, says the International Energy Agency. Photo by Gavin Young/Postmedia

A rebounding Chinese economy and cuts by the Organization of the Petroleum Exporting Countries could lead to a global oil supply shortage, says the International Energy Agency in its latest market report.

That would be good news for oil investors, but bad news for consumers looking for relief at the gas pumps.

The Paris-based organization estimated global demand will grow by two million barrels a day this year to a record 101.9 million barrels per day (mb/d), mostly due to demand from developing countries, with China accounting for 50 per cent of the increase.

But the IEA‘s report on April 14 also estimated average global production of 101.1 mb/d by the end of 2023, the IEA said in an email, leading to a potential shortfall of 800,000 barrels per day.

“Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge,” the IEA said. “The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices, especially in emerging and developing economies.”

Oil was in an oversupply position earlier in the year, but that changed on April 2 when OPEC surprised markets by announcing it would cut production by 1.16 mb/d. That was on top of earlier production cuts of 500,000 barrels per day announced by Russia in March that the IEA said will likely extend to the rest of the year.

The IEA speculated the oil cartel was seeking to support a higher price by cutting production, and that seems to have played out. The price for West Texas Intermediate is up 10 per cent to US$82.81 since April 2, while the price for Canada’s heavy crude Western Canada Select is up nine per cent.

“Rising global oil stocks (earlier in 2023) may have also contributed to the decision,” the IEA said.

So far, however, oil prices have not soared like they did when the world emerged from the depths of the pandemic.

The average price for a litre of gasoline in Canada was $1.14 in January 2020. By June 2022, the price had spiked to $2.07, according to Statistics Canada.

In consumer price index reports, the agency cited the cost of energy as one of the major drivers of inflation, which peaked at 8.1 per cent in June 2022. Inflation was at 5.2 per cent in February on a year-over-year basis. Statistics Canada will report numbers for March on April 18.

Higher oil might spell trouble for consumers, but oil bulls and investors said they saw the demand supply disconnect coming.

“When we think about why we are bullish about oil, it’s not just about demand, it’s really coming down to supply constraint,” Eric Nuttall, an energy analyst with NinePoint Partners LP, said in an interview earlier this year. “As I look out over the next couple of months, I can’t help feeling very bullish about oil.

China’s rebounding demand for oil could also be good news for Canada’s energy producers.

At an energy conference last week, executives from major oilsands producers cited the almost complete Trans Mountain expansion as providing an opportunity for Canada to get more energy to Asia.

“Being able to send our barrels into more markets is a big opportunity for Canada,” Canadian Natural Resources Ltd. chief financial officer Mark Stainthorpe said at the Bank of Montreal-Canadian Association of Petroleum Producers conference.

  1. The main growth in oil supply is set to come from the United States as output from the OPEC+ will decline by 870,000 barrels per day (bpd), led by Russia, says the IEA.

    IEA sees oil demand hitting record high while supply slows

  2. An OPEC flag is seen on the day of OPEC+ meeting in Vienna.

    5 things to watch as OPEC+ shock revives oil bulls

  3. On Tuesday, prices for West Texas Intermediate crude closed at US$80.71 a barrel in the aftermath of an unexpected production cut announced by OPEC+ countries on the weekend.

    Flush with cash, Canadian oilpatch rapidly slashes debt

He said CNRL is looking to ship 94,000 barrels a day on the expanded Trans Mountain when it begins operating in the first quarter, likely to Asia and west coast markets in the United States.

Attendees at the conference also said the expansion could lead to production increases.

Canada is forecast to produce “a record high 5.85 mb/d of oil in 2023, 100 kb/d higher than the 5.75 mb/d it produced in 2022,” the IEA said in an email.

With a file from Bloomberg.

• Email: gmvsuhanic@postmedia.com | Twitter:

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