- The CEO of the Saudi oil company, Aramco, issued the warning based on China’s demand projections for this year.
- According to the International Energy Agency, world demand for crude oil in 2023 will rise to 101.7 barrels per day.
- About half of world oil production will be absorbed by China, according to the agency’s estimates.
Aramco CEO Amin Nasser said he was concerned about future global crude supplies this year. The head of the world’s largest oil company has several reasons to believe this will happen soon.
Until now, the demand for oil has remained at a moderate level due to several factors. This is explained by the slowdown in the Chinese economy, bottlenecks in maritime trade, and air transport still recovering from the pandemic.
But all the forecasts of the experts point towards a drastic change in the energy market. The Saudi executive fears that the world oil industry will not be able to meet the additional demand for crude and there will be a shortage of supply.
“For crude oil, we are in a situation where there is capacity available that is helping to mitigate disruptions,” Nasser said in statements to US news network CNBC.
“However, I am not so sure about the medium to long term, because as additional capacity erodes, we will not have the ability to mitigate short-term or long-term disruptions as happened with the Russia-Ukraine crisis,” he added.
Aramco currently produces about 10% of all the crude oil consumed in the world. Although it has an installed capacity to pump up to 12 million barrels of oil per day, Nasser specified.
The company is trying to increase its daily production by another million barrels. But Nasser believes that there are reasons to “be concerned about the medium and long term”, because this year there will be “a problem to satisfy the growing demand”.
World demand for crude oil will increase by 101.7 mbd
Nasser’s concerns coincide with the latest report on the world oil market published this week by the International Energy Agency (IEA). The agency is forecasting that global demand for crude this year will increase by 1.9 million barrels per day.
If so, world oil consumption will reach a record figure of 101.7 million barrels of oil per day. About half of that demand will come from China, which has lifted most of the restrictions, despite the persistence of massive covid-19 infections.
The IEA estimates that the Global oil supply growth will slow by 1 million b/d, after growth driven by the Organization of the Petroleum Exporting Countries (OPEC+) last year of 4.7 mb/d.
Aramco will not be able to meet aggregate demand
Aramco’s efforts to ramp up its additional production capacity will not be enough, Nasser said. “I don’t think it’s enough investment to bring in the additional capacity that will be needed to supply the market.”
So even when production capacity grows, you will not be able to mitigate this situation. The executive estimates that demand will grow and there will be nothing to compensate for the drop in crude supplies.
“Additional investment elsewhere, globally, is needed to meet global demand,” he said. The fact is that investments in hydrocarbons have decreased throughout the world in recent years and this trend will continue.
The focus of the automotive industry, among others, towards decarbonization and government regulations in industrialized countries, are discouraging investments in exploration and drilling of new deposits.
Several OPEC producers, including Saudi Arabia, have called for new investment in the oil industry and for a moderate energy transition to avoid future periods of crude supply shortages.
Crude oil price will increase to 3 digits again
With the current market dynamics, oil prices could return to triple digits in no time. This is the opinion of the executive director of the Spanish oil company Cepsa, Maarten Wetselaar, who forecasts that price level for the second half of 2023.
On Wednesday morning in Europe, Ice Brent crude futures for March delivery were trading around $87 a barrel, gaining 1.25% compared to the USD 85.92 with which it closed on Tuesday in London.
For Nasser, the oil outlook in the coming months is clear. He points out that there are currently about 2 million barrels of crude left over on the market.But that situation will change for a improving prospects for the global economy.
“The aviation industry is 1 million barrels below the pre-Covid level. As [la] aviation industry picks up in 2023-24, that’s an additional million barrels. [Considere] the opening up of China and that will really add a lot to the demand side,” he said.
With all these indicators at hand and if a global recession does not occur as predicted and the economies manage to recover and grow, oil demand will tend to increase. Consequently, the world economy will require additional supply for which additional investment is needed as well.