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Chinese demand to drive oil sector growth in 2023: Morgan Stanley

Morgan Stanley stated that it anticipates a rise in global oil consumption of roughly 1.9 million barrels per day as opposed to its prediction of 1.4 million bpd

Citing an increasing momentum in China’s COVID-battered economy and a rebound in aviation, Morgan Stanley has raised its forecast for 2023’s growth in global oil consumption by approximately 36%. However, Morgan Stanley also noted more robust production from Russia can be an offsetting factor.

Morgan Stanley stated in a note that it anticipates a rise in global oil consumption of roughly 1.9 million barrels per day as opposed to its prediction of 1.4 million bpd.

According to it, congestion levels have been continuously rising in China, and “flight schedules have firmed up the outlook for jet fuel demand.”

However, production from Russia has been higher than anticipated, resulting in a slightly lower-than-expected shortfall in the second half of the year, according to the bank’s experts, who reduced their projection for the price of Brent oil for that period from USD 100-110 to USD 90-100 per barrel.

Predicting the oil sector outlook for 2023, Morgan Stanley added, “We previously estimated a 1 mb/d year-on-year decline, which we moderate to 0.4 mb/d,” referring to its view for Russian output in a million barrels per day.

Earlier in February, Goldman Sachs reduced its estimate for the 2023 Brent price and increased its forecasts for the 2023 and 2024 global supply, with the most noticeable increases coming from Russia, Kazakhstan, and the US.

Nevertheless, Goldman Sachs also pointed out that 2023’s increase in Chinese demand of 1.1 million bpd should force oil markets back into a deficit in June.

Meanwhile, CIBC Private Wealth senior equity trader Rebecca Babin informed CNBC that the US crude oil prices could climb as much as 25% in the next six months of 2023.

She said that West Texas Intermediate could hit USD 90 to USD 95 a barrel, while the international benchmark Brent could reach USD 95 to USD 100, though surpassing USD 100 would be “overzealous.”

The re-opening of China will be a “huge swing factor for demand,” which could increase by 1 million barrels year-over-year, Rebecca Babin remarked.

However, she acknowledged that the market has anticipated such a China-led rally in oil prices before only to see them pull back again.

“There’s definitely been a lot of hype around this trade,” Rebecca Babin said.

“We’ve been talking about this now for six months. And it is a fair point: this is a little bit stale. We’re waiting for this rose to bloom, and every time it starts to, we get hit with another macro headwind. I think there’s hesitancy to buy into that trade, when you’ve struck out a number of times before and are playing it a little bit more cautiously. It’s a ‘I’ll believe it when I see it in the market’,” she added further.

The expert also sees the prices of refined products rising in 2023 summer as well, if sanctions on Russian fuels keep supplies off the global market.

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