Energy report: China's reopening could spur global demand for oil

China's lifting of COVID-19 restrictions is expected to boost global oil demand this year to a new record high, the International Energy Agency (IEA) said Wednesday.

The energy watchdog forecasts that global oil demand is set to rise by 1.9 million barrels a day, to a record 101.7 million barrels daily in 2023, with nearly half the gain from China following its lifting of COVID restrictions.

"China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain," the agency said in its monthly report.

In its report, the IEA said "a faster than anticipated reopening of China" and a "improved economic outlook" as well as lower oil prices for the upward revisions to its oil-demand forecasts, according to The Wall Street Journal. The agency raised its forecast for Chinese demand by 100,000 barrels a day to 15.9 million barrels a day.

As international travel recovers, jet fuel remains the largest source of growth, accounting for almost half of this year's increase in oil demand, according to the IEA. Demand for jet fuels and kerosene, both of which are used as aviation fuels, is expected to rise by 850,000 barrels a day this year, following a similarly strong 2022, the Journal reported.

By Jan 10, China had resumed 563 international flights, 6 percent of the pre-pandemic amount. It is expected that there will be 1,000 international flights on a weekly basis by the end of February and a faster recovery in the second half of this year, according to data shared with media from the Chinese Consulate General in New York.

Oil prices rose about 1 percent on Wednesday to their highest intraday levels since early December after the IEA's forecasts and traders' optimism in China's economic recovery.

In the last quarter of 2022, mild weather and weak industrial activity helped cut oil demand by nearly a million barrels per day in developed countries, the report said.

But despite the fear of likely mild recessions in Europe and the US, China's reopening is set to fuel a rebound in nearby Asian economies and see it take the lead from India as the world's leader in oil-demand growth, Reuters reported.

"The return of China's consumption engines is enormous for the oil market outlook," said Stephen Innes, managing partner at SPI Asset Management, in a market update. "While the industrial engine is revving up, guzzling down oil products, consumers will soon catch up at the petrol pump.

"Crucially, the accumulation of household savings is massive and has risen fast over the past three years. Ultimately, when Chinese consumers start spending, it will boost oil prices," he added.