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China Will Make Up Nearly 40% of the Rise in Global Oil Demand in 2023, Wood Mackenzie Says

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  • "A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year," Wood Mackenzie said in a report.
  • "Our China high-growth scenario centers on the economy growing by 7% in 2023 and 5.5% in 2024," the research firm said in the report.

China will make up a sizeable portion of the world's demand recovery for oil as the global economy braces itself for a slowdown in the wake of interest rate hikes, Wood Mackenzie said.

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The research firm said in a Thursday report that it views China's reopening as the "single biggest demand driver" for a recovery in oil demand this year — it expects the country will make up roughly 40% of the world's recovery in demand for the commodity.

"A return to normal mobility in China is the single biggest demand driver, accounting for 1.0 million barrels per day (b/d) of the 2.6 million b/d increase this year," a team of analysts led by vice president Massimo Di Odoardo said in the report, laying out its base case scenario. That means 38.5% of global oil demand recovery would come from China.

Chinese President Xi Jinping in his recent visit to Moscow affirmed economic cooperation with Russian President Vladimir Putin for the next several years, including on energy security. Xi, in his trip to Saudi Arabia, also stressed the importance of stability in the oil market.

The firm added, "Barring a significant recession, we see Brent rising from current levels to average $89.40/bbl for 2023." Current prices for the commodity as last seen trading lower, with Brent futures at $76.01 per barrel during Asia's session.

The firm is, however, optimistic about global growth this year — despite the World Bank and the International Monetary Fund warning of a bumpy road ahead.

"We don't anticipate a global recession this year, despite recent turmoil in global financial markets following the collapse of Silicon Valley Bank," researchers said in the report. "But we do expect the economic slowdown across western economies to continue for several months before reaching a turning point in the second half of 2023," they wrote.

'Under-promising and over-delivering'

While Wood Mackenzie says private consumption will be the leading factor for a surge in China's oil demand, it sees an upside to its base case scenario if economic growth were to be industry-led instead.

In its high-growth scenario, the firm expects Chinese officials will turn to measures to stimulate the economy by boosting infrastructure spending, which it forecasts will raise construction growth by more than 10% in 2023.

Wood Mackenzie predicts China's economy will expand 7% in that scenario.

China, in its latest batch of economic data releases, saw a rather muted start to its post-Covid year, with industrial production for the first months of the year falling below market expectations.

And the country's leaders took a cautious approach to its economy in its latest government work report released earlier this month — setting a conservative target for its gross domestic product of "around 5%" in 2023.

But China's "historical GDP growth has a track record of outpacing government forecasts – in 12 of the past 18 years growth has exceeded the official target," Wood Mackenzie said, adding that "This is likely another case of under-promising and over-delivering."

"Our China high-growth scenario centers on the economy growing by 7% in 2023 and 5.5% in 2024," the firm said in the report.

Analysts at Oxford Economics, however, are of the view that government measures would have the opposite effect. They expect that Beijing's focus on reining in local government debt problems will constrain infrastructure spending, and, by extension, demand for commodities.

"Higher planned transfers from the central government to local governments ... will likely mean that local government financing vehicles, used to traditionally fund off-budget local infrastructure spending, will cease to be a main financing support," they said in a note.

"Alongside a private consumption-driven growth rebound, this naturally means we will very likely see a less commodity-intensive recovery this year," they added.

– CNBC's Evelyn Cheng contributed to this report.

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