Oil Demand is Set to Rise, so Oil Price is Set to Rise in the Near Term as Well

The Brent crude oil futures with delivery in November on the London exchange ICE rose above $93 per barrel for the first time since November 16, 2022. The price of Brent crude oil rose by 1.28% to $93.18 per barrel at the time of writing. In its turn, WTI for October's deliveries rose by 1.51% to sell for $89.91, having hit $90 per barrel intraday.

OPEC+ have begun limiting supply in 2022 to support the oil market. Benchmark Brent crude topped $90 a barrel for the first time this year this month after OPEC+ leaders Saudi Arabia and Russia extended a combined production cut of 1.3 million barrels per day (bpd) through the end of 2023.The oil production cuts, which Saudi Arabia and Russia have extended until the end of 2023, will invariably mean a significant market deficit in Q4 going forward.

OPEC+ members' production cuts of more than 2.5 million bpd from the start of 2023 have so far been offset by increased supply from producers outside the alliance, including the U.S., Brazil and Iran, which is still under sanctions.

Starting in September, the deficit of OPEC+ production will lead to a significant supply shortfall in Q4 2023. The broader economic challenges posed by China's sluggish post-pandemic recovery are compounded by concerns that interest rates in the United States will remain high.

Nevertheless, oil demand from the world's largest oil importer has so far remained largely unaffected by the economic downturn. But any sharp weakening in China's industrial activity and oil demand is likely to spread globally, complicating the investment climate for emerging markets in Asia, Africa and Latin America."

Both the IEA and OPEC are optimistic about China's demand through 2023 in their monthly report released Tuesday this week, leaving their estimates of global demand for this year and next – virtually unchanged.

The IEA estimates that global demand will grow by 2.2 million bpd in 2023, while OPEC expects growth of 2.44 million bpd. The IEA expects growth to slow sharply to 1 million bpd, while OPEC has a much more optimistic estimate of 2.25 million bpd.

Meanwhile, the US government's Energy Information Administration forecasts demand growth of 1.81 million bpd in 2023 and 1.36 million bpd next year. Hence, the majority of industry’s think tanks forecast significant oil demand advances regardless of the macroeconomic environment.