1 of 3 | If you're looking for factors that will determine the outlook for energy supply and demand, look no further than China, the International Energy Agency said. China accounts for about half of the increase in global crude oil demand this year. File photo by Alex Plaveski/EPA-EFE
Jan. 18 (UPI) -- This year could see global crude oil demand hit its highest level ever, though some of that demand growth will be offset by the so-called energy transition, the International Energy Agency said Wednesday.
The IEA released its monthly market report for January one day after the economists at the Organization of the Petroleum Exporting Countries predicted global economic weakness for 2023.
OPEC economists left much of their supply and demand forecasts unchanged from the December report but pointed to geopolitical concerns over the war in Ukraine and resurgent demand in China as factors to watch for the year.
The IEA said it expected global crude oil demand to increased from year-ago levels by 1.9 million barrels per day to reach 101.7 million bpd, a record should the forecast prove accurate.
Nearly half of that increase in demand is expected from China, where the loosening of pandemic-related restrictions is leading to a massive increase in its overall appetite.
"China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain," the IEA's report read.
China, the second-largest economy after the United States, reported that gross domestic product last year increased by 3%, its lowest since the 1970s. OPEC economists expect China's economy to expand by another 5.6% this year, however, outperforming many of its Western peers.
Another issue on the IEA's radar is Russia. Western-backed sanctions are limiting Russia's export potential for crude oil and natural gas, but not as much as most market watchers had feared.
Nevertheless, IEA said expectations for higher crude oil demand could collide with future declines in Russian supplies and create something of an uncomfortable tone for 2023.
"The well-supplied oil balance at the start of 2023 could quickly tighten however as western sanctions impact Russian exports," the IEA's report read. "Product markets, especially diesel, are most at risk just as demand growth recovers."
Western economies will no longer take in refined petroleum products from Russian in February, adding to restrictions imposed on crude oil last year.
The IEA, however, offered some cause for optimism against what would otherwise be seen as dark clouds on the horizon. The transition away from fossil fuels, through the pursuit of existing technologies such as offshore wind and electric vehicles to niche developments like hydrogen, is paying off.
"Measures like these are especially vital in a supply-constrained oil market," the IEA's report read.