Dated Brent crude is expected to remain near $80 per barrel through June 2023, according to traders and analysts who spoke with S&P Global Commodities Insights on March 1. Large inventories are currently buffering the market from the ongoing effects of Russia’s invasion of Ukraine, which began over a year ago. Analysts project a price increase to between $85 and $90 in the second half of the year. This anticipated rise is linked to a recovery in Chinese travel and factory activity following Beijing’s sudden exit from zero-COVID restrictions.
Russian Exports Find New Routes
Western embargoes on Russian oil have redirected Moscow’s seaborne exports to record levels in new directions. India imported 1.3 million barrels per day of Russian crude in January, the highest monthly rate ever recorded, according to S&P Global’s Commodities at Sea database.
Europe, which previously received 750,000 barrels per day of Russian diesel, now purchases fuel from India and the Middle East. Meanwhile, Russian naphtha and fuel oil are being shipped to Asian markets. The G7 price cap regime, tightened on February 3, sets a $100 per barrel ceiling for Russian diesel and kerosene and a $45 per barrel limit for residual fuel oil.
A senior U.S. Treasury official, speaking on condition of anonymity, stated that the caps are functioning as intended by allowing Russian barrels to flow while reducing revenue for the Kremlin. In response, Moscow announced a unilateral production cut of 500,000 barrels per day starting in March.
However, external surveys indicate Russia is still producing close to 10 million barrels per day, roughly matching pre-war levels.
China’s Economic Rebound
Chinese refiners processed 14.1 million barrels per day in January, the fastest pace since last summer. Domestic flights increased by 89 percent month-on-month. JLC analyst Li Yan told S&P Global that gasoline demand has already exceeded December 2021 levels, with the recovery running two months ahead of expectations.
Private Chinese “teapot” refiners sold 6.8 million metric tonnes of oil products in January, a five-month high. Official guidance indicates lower export quotas for March as maintenance season reduces surplus barrels.
The International Monetary Fund projects China’s economy will grow 5.2 percent in 2023, up from 3 percent last year, adding approximately 900,000 barrels per day to global oil consumption. S&P Global estimates world oil demand will exceed 102.6 million barrels per day this year, finally surpassing the 2019 record.
Inventory Levels and OPEC+ Strategy
OECD commercial stocks rose for four consecutive months through January, with forward cover reaching 59 days, well above the five-year average. Shin Kim, head of supply-demand analytics at S&P Global Commodities Insights, noted that ample tanks in the Atlantic basin are masking tightening that will begin once Chinese buying accelerates. The firm expects global stock draws to start in the third quarter and continue into 2024. U.S. strategic petroleum reserves add complexity.
Congress has mandated an additional 26 million barrel sale in fiscal 2023, but the White House has not scheduled deliveries. S&P Global indicated it no longer expects additional buybacks through 2024, suggesting Washington will remain inactive unless prices exceed $100 per barrel.
The 23-nation OPEC+ alliance, co-chaired by Saudi Arabia and Russia, left output quotas unchanged at its February meeting and will review policy in June. Ministers want clearer evidence of Chinese demand before adjusting the 2 million barrel per day cut agreed last October. Saudi energy minister Prince Abdulaziz bin Salman stated the group will not act on speculation.
Traders see modest supply growth this year. S&P Global forecasts a 2.1 million barrel per day increase in non-OPEC output, half last year’s pace.
Russian disruption is now estimated at 700,000 barrels per day below pre-war levels, less severe than the 900,000 barrels per day feared a month ago. Helima Croft, managing director at RBC Capital Markets, observed that the market has adapted faster than anticipated, though uncertainty remains about whether resilience will persist if the Ukraine conflict escalates or Iran sanctions are reinstated. With war risks embedded in trade routes and China’s post-COVID rebound still developing, the first half of 2023 appears stable.
However, falling inventories and record Asian demand could soon test OPEC+’s spare capacity and Western willingness to maintain caps on Russian barrels.
