Dated Brent crude is set to drift near $80 a barrel through June 2023, traders and analysts told S&P Global Commodities Insight on 1 March, as swollen inventories cushion the market from the one-year-old shock of Russia’s invasion of Ukraine. A second-half lift toward $85-$90 is expected once Chinese travel and factory demand rebound after Beijing’s sudden exit from zero-COVID controls. Western embargoes on Russian barrels have pushed Moscow’s seaborne exports to record volumes in the opposite direction.
India imported 1.3 million b/d of Russian crude in January, the highest rate on record, according to S&P Global’s Commodities at Sea database. Europe, once the destination for 750,000 b/d of Russian diesel, is now buying the fuel from India and the Middle East while Russian naphtha and fuel oil sail to Asia.
The G7 price-cap regime, tightened on 3 February, sets a $100/b ceiling for Russian diesel and kerosene and $45/b for residual fuel oil. “The caps are working exactly as designed: Russian barrels keep flowing but at prices that erode the Kremlin’s war chest,” a senior U.S. Treasury official said on condition of anonymity because he was not authorised to speak publicly.
Moscow has responded by announcing a unilateral 500,000 b/d production cut starting in March, yet external surveys show the country still pumping close to 10 million b/d, roughly matching pre-war levels.
China’s rebound looms large
Chinese refiners processed 14.1 million b/d in January, the fastest pace since last summer, and domestic flights jumped 89 % month on month. “We see gasoline demand already above December 2021 levels; the recovery is running two months ahead of our base case,” JLC analyst Li Yan told S&P Global. Beijing’s private “teapot” refiners sold 6.8 million metric tonnes of oil products in January, a five-month high, while official guidance signals lower export quotas for March as maintenance season trims surplus barrels.
The International Monetary Fund projects China’s economy will expand 5.2 % in 2023, up from 3 % last year, adding roughly 900,000 b/d to global oil consumption. S&P Global reckons world demand will top 102.6 million b/d this year, finally eclipsing the 2019 record.
Inventories cushion first-half balances
OECD commercial stocks rose for four straight months through January, leaving the forward cover at 59 days, well above the five-year average. “Ample tanks in the Atlantic basin are masking the tightening that starts once Chinese buying accelerates,” said Shin Kim, head of supply-demand analytics at S&P Global Commodities Insight. The firm expects global stock draws to begin in the third quarter and deepen into 2024.
U.S. strategic petroleum reserves complicate the picture. Congress has mandated an additional 26 million barrel sale in fiscal 2023, but the White House has not scheduled deliveries.
“We no longer pencil in additional buybacks through 2024,” S&P Global noted, implying Washington will stay on the sidelines unless prices spike above $100.
OPEC+ holds fire, for now
The 23-nation OPEC+ alliance, co-chaired by Saudi Arabia and Russia, left output quotas unchanged at its February meeting and will review policy again in June. Ministers want clearer evidence of Chinese demand before loosening the 2 million b/d cut agreed last October. “We are not going to act on speculation,” Saudi energy minister Prince Abdulaziz bin Salman said after the gathering.
Traders therefore see only modest supply growth this year: S&P Global forecasts a 2.1 million b/d rise in non-OPEC output, half last year’s pace, while Russian disruption is now pegged at 700,000 b/d below pre-war levels, less severe than the 900,000 b/d feared a month ago. “The market has adapted faster than anyone expected,” said Helima Croft, managing director at RBC Capital Markets.
“The question is whether that resilience persists if Ukraine escalates or Iran sanctions snap back.” With war risks embedded in trade routes and China’s post-COVID rebound still in its infancy, the first half of 2023 looks stable. Come summer, falling inventories and record Asian demand could quickly test OPEC+’s spare capacity and the West’s willingness to keep Russian barrels capped.
