Oil producers may have to reconsider their output policies following a demand recovery in China, the world’s second-largest oil consumer, the International Energy Agency’s Executive Director Fatih Birol said on Sunday.
Demand in China, the world’s largest crude importer and No. 2 buyer of liquefied natural gas, has become the biggest uncertain factor in global oil and gas markets in 2023 as investors bet on the speed of its recovery after Beijing lifted COVID restrictions in December.
“We expect about half of the growth in global oil demand this year will come from China,” Birol told Reuters on the sidelines of the India Energy Week conference.
He added that China’s jet fuel demand is exploding, putting upward pressure on demand.
“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.
Producer group OPEC+ angered the United States and other Western nations in October when it decided to cut output by 2 million barrels a day from November through 2023, instead of pumping more to cut fuel prices and help the global economy as the U.S. advised.
Birol said he hoped such a situation does not repeat, and that OPEC+ – which includes members of the Organization of the Petroleum Exporting Countries and allies such as Russia – will return to a constructive role in the market as demand improves.
OPEC+ rolled over the group’s current output policy at a meeting on Wednesday, leaving production cuts agreed last year in place.
Separately, Birol said price caps on Russian oil have achieved the objectives of both stabilizing oil markets and reducing Moscow’s revenues from oil and gas exports. Russia’s revenues likely fell by nearly 30% in January, or about $8 billion, compared with a year before, he added.
G7 nations, the European Commission and Australia this week approved a $100 per barrel price cap on diesel and a $45 per barrel cap on discounted products such as fuel oil starting from Feb. 5.
This followed a similar measure they implemented on Dec. 5 barring Western-supplied maritime insurance, finance and brokering for seaborne Russian crude unless it was sold below a $60 price cap.
Birol said fuel markets might face difficulties in the short term as global trade routes “reshuffle” to accommodate Europe drawing on more imports from China, India, the Middle East and the United States.
That could force other markets such as Latin America to scout for alternative imports, he said.
Europe has decided to end refined fuel imports from Russia from Sunday.
Birol said however that the fuel market balance could improve from the second half as more refining capacity is added globally.