DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange eroded further Tuesday after the International Energy Agency forecasted significantly softer demand growth next year, citing China's persistently weak economy, Europe's deepening energy crisis, and a strong U.S. dollar that are all weighing heavily on global fuel consumption.

In its monthly Oil Market Report released Tuesday morning, IEA estimated global oil demand growth would slow to 1.6 million barrels per day (bpd) next year -- a considerable stepdown from the 2.1 million bpd annual growth rate seen this year. Mounting economic headwinds tied to inflationary pressures across major economies coupled with geopolitical uncertainties are thought to be responsible for slower demand growth next year.

For refined products in particular, demand growth is forecast to ease from 1.5 million bpd in 2021 to 400,000 bpd in 2022 before posting a small decline in 2023 under the weight of persistently high prices and slowing economies.

Global oil production is projected to fall 1 million bpd during the remainder of the year as OPEC+ cuts and an EU ban on Russian waterborne crude come into effect. Annual growth of 4.6 million bpd this year is set to boost global production to 99.9 million bpd. Modest gains of just 740,000 bpd in 2023 will push global supply to 100.7 million bpd.

Slower demand growth did little to halt continued drawdowns from global oil inventories that fell by 14.2 million barrels (bbl) in September. Oil stocks in countries that are part of the Organization for Economic Cooperation and Development plunged by 45.5 million bbl and non-OECD stocks by 19.3 million bbl, which were partially offset by floating storage which jumped by 50.6 million bbl.

"Oil markets remain finely balanced going into the winter months, with OECD stocks trending at the lowest levels since 2004. The approaching EU embargoes on Russian crude and oil product imports and a ban on maritime services will add further pressure on global oil balances, and, in particular, on already exceptionally tight diesel markets."

IEA estimates that oil flow from Russian ports rose by 165,000 bpd in October to 7.7 million bpd as shipments to the European Union, China, and India held up well into last month.

"By October, EU countries had reduced Russian crude oil imports by 1.1 million bpd to 1.4 million bpd, and diesel flows by 50,000 bpd to 560,000 bpd. When the crude and product embargoes come into full force in December and February, respectively, an additional 1.1 million bpd of crude and 1 million bpd diesel, naphtha and fuel oil will have to be replaced." said IEA.

The most recent data shows the divergence of Russian oil to the Asian markets is well underway, with buyers from China, India, Turkey, and United Arab Emirates lifting increasing volumes of Russian crude that have been displaced by the lack of demand from European buyers.

Russian crude oil exports rose to 3.25 million bpd for the first two weeks of November, which is roughly the same rate Russia exported in the weeks prior to President Vladimir Putin's invasion of Ukraine on Feb. 24. Two-thirds of the crude loaded at Russian ports are now heading to Asian markets. In comparison, Russia's seaborne oil exports to European countries dropped to just 700,000 bpd in the four-week period ending Friday (11/11).

Additionally, crude loadings out of Russian ports that are yet to show their final destination rose to a record 2.39 million bpd on a four-week average basis. This might suggest the so called "shadow trade" in Russian crude tankers is gaining traction ahead of a European embargo on Russian oil flow that is set to take effect Dec. 5.

Near 7:30 a.m. EST, NYMEX WTI for December delivery declined $0.72 bbl to $85.16 bbl, and international crude benchmark ICE Brent fell to $92.50 bbl, down $0.64. NYMEX December RBOB futures declined 1.32 cents to $2.5153 gallon, and December ULSD futures advanced 1.41 cents to $3.5595 gallon.

Liubov Georges can be reached at Liubov.Georges@dtn.com