With mobilization in China normalizing, new Wood Mackenzie analysis expects the country to account for almost 40% of global growth in oil demand this year.
Morning rush hour in Beijing. Source: Getty Images.
China’s economy is poised for a big post-lockdown era rebound which will drag up oil and gas prices according to a leading energy research firm.
In a new report that calls oil “a big winner,” Wood Mackenzie said its base-case scenario for China’s GDP growth is 5.5% in 2023 and 5.1% in 2024. The growth will be driven in large part by Chinese who are returning to the roads and air after nearly 3 years of strict COVID-19 pandemic lockdowns and travel restrictions.
WoodMac expects the ramp-up in Chinese consumption beginning this month will lead a global resurgence in oil demand, accounting for 1 million B/D of the 2.6 million B/D rise expected this year.
That will be enough to see oil prices rise with Brent averaging $89.40/bbl this year, or about $10 above where prices have hovered for the past week.
But if the government pushes harder, WoodMac’s high-growth scenario projects Chinese demand to rise by as much as 1.4 million B/D which might add $3.00 to $5.00/bbl over the base-case oil price.
WoodMac also sees a tight global gas market going forward with prices ranging from $15 to $20/MMbtu. Chinese demand for gas and LNG “hit the rocks in 2022” according to the firm as consumption dropped 2% and LNG orders dropped 20%. The drops were linked to increased domestic output and quicker-than-expected deliveries of Russian gas via pipeline.
While it is not ruling out an unexpected uptick in Chinese demand for LNG, which would lead to higher prices, WoodMac said any rise in demand “is unlikely to lead to a repeat of the chaos seen in 2022.”