Two wild cards dominate the 2023 oil market outlook: Russia and China. This year could see oil demand rise by 1.9 mb/d to reach 101.7 mb/d, the highest ever. China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain. Energy efficiency gains and booming sales of electrical vehicles will curb global 2023 demand growth by close to 900 kb/d this year. Measures like these are especially vital in a supply-constrained oil market.

A slow demand recovery expected in 1H23 suggests continued inventory builds like those that started to emerge in 3Q22. In the last quarter of 2022, supply outpaced demand by over 1 mb/d despite a cut in OPEC+ production targets and disruptions to US supply due to winter storms. Mild weather combined with weak industrial activity to cut oil demand use in Europe. Demand was also restrained by China’s Covid lockdowns and winter blizzards that disrupted holiday travel in the US and Canada. As a result, 4Q22 oil demand contracted by a massive 910 kb/d year-on-year in the OECD and exceptionally by 130 kb/d y-o-y in China.

Much of the surplus oil appears to have ended up in emerging markets, including China, and on tankers at sea. By end-November, observed non-OECD inventories had risen by 75 mb y-o-y compared to a 233 mb decline in the OECD where 270 mb of government reserves were released. Oil on water increased by a massive 181 mb because tankers now have to sail significantly longer distances due to the reallocation of Russian flows.

Global oil demand is set to rise by 1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its Covid restrictions. Jet fuel remains the largest source of growth, up 840 kb/d. OECD oil demand slumped by 900 kb/d in 4Q22 as weak industrial activity and weather effects lowered use, while non-OECD demand was 500 kb/d higher.

World oil supply growth in 2023 is set to slow to 1 mb/d following last year’s OPEC+ led growth of 4.7 mb/d. An overall non-OPEC+ rise of 1.9 mb/d will be tempered by an OPEC+ drop of 870 kb/d due to expected declines in Russia. The US ranks as the world’s leading source of supply growth and, along with Canada, Brazil and Guyana, hits an annual production record for a second straight year.

Global refinery activity was steady in December as US runs plunged 910 kb/d due to weather-related outages, but higher runs in Europe and Asia offset the fall. After an increase of 2.1 mb/d in 2022, refinery throughputs are set to grow by 1.5 mb/d in 2023, helped by 2.2 mb/d of capacity additions between 4Q22 and end-2023.