By Adedapo Adesanya
Crude oil prices edged up by about one per cent on Wednesday on expectations that the winter season in the Northern hemisphere will see an increase in gas-to-oil switching due to high prices.
Brent crude futures settled higher by 93 cents or 1 per cent at $94.10 a barrel while the US West Texas Intermediate (WTI) crude ended $1.17 or 1.3 per cent higher at $88.48 per barrel.
The International Energy Agency (IEA) said it expects widespread switching from gas to oil for heating purposes.
The agency said the deepening economic slowdown and a faltering Chinese economy will cause global oil demand to grind to a halt in the fourth quarter of the year.
Global oil demand is set to grow by 2 million barrels per day this year, the IEA said on Wednesday, revising its growth down by an estimate of 110,000 barrels per day from last month as it expects China’s oil demand to fall for the first time in more than three decades.
The slowdown in China will be partly offset by “large-scale switching from gas to oil,” which is estimated to average 700,000 barrels per day in the fourth quarter of 2022 and the first quarter of 2023, double the level from a year ago, according to the IEA.
Oil demand in China is expected to fall by 2.7 per cent, or by 420,000 barrels per day, this year compared to last year, per IEA estimates. If the estimates are correct, this could be the first yearly decline in Chinese oil demand since 1990 and only the second such drop in IEA records since 1984.
The IEA’s new estimate is now in line with several analyst forecasts that anticipate sudden COVID-19 lockdowns will weigh on China’s oil demand this year as people avoid mass travel around holidays, dragging fuel consumption in the world’s top crude importer down for 2022 for the first time in two decades.
Elsewhere in the IEA report, figures show still very resilient Russian oil exports. Russian total oil exports actually rose by 220,000 barrels per day in August to 7.6 million barrels per day, which is down by just 390,000 barrels per day from pre-war levels. Estimated export revenues for Russia fell by $1.2 billion from July to $17.7 billion in August.
However, the EU embargo on Russian crude oil and product imports that comes into effect in December 2022 and February 2023, respectively, is expected to result in deeper declines as an additional 1 million barrels per day of products and 1.4 million barrels per day of crude will have to find new homes, the IEA said.
In the US, however, crude inventories rose last week for a second week in a row, once again boosted by the ongoing releases from the Strategic Petroleum Reserve (SPR), the latest government data from the Energy Information Administration (EIA) showed.
Crude stockpiles rose by 2.4 million barrels as 8.4 million barrels were released from the SPR, part of a programme scheduled to end next month.
On its part, the Organisation of the Petroleum Exporting Countries (OPEC) said global oil demand in 2022 and 2023 will come in stronger than expected, citing signs that major economies are faring better than expected despite challenges such as surging inflation.
