Following a rebound in demand in China, the world's second-largest oil consumer, oil producers may need to reevaluate their output strategies, International Energy Agency Executive Director Fatih Birol said on Sunday (Feb 5).
"We expect about half of the growth in global oil demand this year will come from China," Birol said. He continued, saying that the demand for aviation fuel in China is surging, pushing up prices.
As investors gambled on the speed of its recovery after Beijing relaxed COVID-19 limitations in December, China, the world's largest crude importer and No. 2 consumer of liquefied natural gas, has emerged as the biggest unknown factor in the global oil and gas markets in 2023.
"If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their (output) policies," Birol said.
Birol expressed his optimism that a similar circumstance won't arise again and that OPEC+, which is made up of OPEC members as well as allies like Russia, will resume playing a helpful role in the market when demand rises.
When producer group OPEC+ decided in October to reduce output by 2 million barrels per day from November through 2023 rather than increase production as the US suggested to lower fuel costs and support the global economy, it infuriated the US and other Western countries.
At a meeting on Wednesday, OPEC+ decided to maintain the group's present output policy, which includes production curbs set in place last year.
Separately, Birol claimed that price controls on Russian oil had probably reduced Moscow's earnings from oil and gas exports by up to 30% in January, or around $8 billion, compared to the same month last year.
This week, the G7 countries, the European Union, and Australia accepted a $100 per barrel price restriction on diesel and a $45 per barrel price cap for discounted goods like fuel oil beginning on Feb. 5.
This came after they took a similar action on December 5 that forbade Western marine insurance, finance, and brokering for seaborne Russian crude unless it was sold for less than $60 per barrel.
As global trade channels "reshuffle" to suit Europe's increased reliance on imports from China, India, the Middle East, and the United States, Birol warned that fuel markets may see challenges in the near future.
The European Union has decided to stop importing refined petroleum from Russia as of Sunday. However, according to Birol, when more refining capacity is added internationally, the balance of the gasoline market may improve from the first half.