Oil price dip ignores burgeoning Chinese demand and imminent supply crunch, IEA warns
Aerial view of oil and gas jack-up rig at the yard for maintenance with many vessels in Singapore. Oil prices saw three consecutive weekly declines last week, marking the longest losing run this year.
Chain45154 | Moment | Getty Images
The ongoing pressure in oil prices neglects an accelerating demand outlook and looming supply tightness, the Paris-based International Energy Agency warned on Tuesday.
Financial turbulence in the banking sector after the spring collapse of several U.S. and European banks steered investors away from historically riskier assets, such as oil. Prices fleetingly gained ground after a number of OPEC+ members announced an additional 1.6 million barrels per day of voluntary cuts at the start of April — only to rapidly surrender these gains, cooling analyst expectations of prices at $100 per barrel.
Ice Brent futures with July expiry were trading at $75.14 per barrel at 12 p.m. London time, down 9 cents per barrel from Monday’s close.
Persisting concerns over “muted industrial activity and higher interest rates … combined have led to recessionary scenarios gaining traction and worries of a downward shift in the oil demand growth,” the IEA said in its latest monthly Oil Market Report. The agency highlighted that the recent price declines reflect a growing rift between investor sentiment and a tightening supply-demand picture.
“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d,” the agency said, revising its global oil demand forecast by 200,000 barrels per day from its previous projection, to reach 102 million barrels per day in 2023.
The IEA expects demand to start exceeding supply as of this quarter, for the first time since early 2022, with this projected deficit set to deepen to nearly 2 million barrels per day by the end of the year.
The world’s largest crude oil importer, China, will account for nearly 60% of global demand growth in 2023, the IEA anticipates, after Bejing’s consumption set its all-time record of 16 million barrels per day in March.
“Record demand in China, India and the Middle East at the start of the year more than offset lacklustre industrial activity and oil use in the OECD,” the IEA said.
Chinese crude oil purchases were curtailed by spartan zero-Covid-19 restrictions that were in place for the majority of last year, with analysts widely expecting Beijing’s economic reopening to kickstart a surge in oil prices.
Vienna in sight
The OPEC+ group has in the past proven wearier to trust a resurgence of Chinese demand, with one delegate, who could only speak under condition of anonymity, previously underlining the pace of Bejing’s rebound has been at times overstated.
In its own Monthly Oil Market Report of May 11, OPEC acknowledges that “looking ahead, oil demand for most products in China has been increasing,” assessing Chinese domestic mobility and air travel have now recovered close to 80% of pre-pandemic levels, with oil demand set to experience 1 million barrels per day of year-on-year growth in the second quarter.
The IEA and White House have criticized the OPEC+ alliance’s early-April voluntary cuts decision, stressing the strain on consumers.
OPEC+ and the Paris-based agency have progressively diverged in their analysis of the global energy picture, from their outlook on oil prices and supply requirements, to their longer-term view on hydrocarbon investment.
The IEA in 2021 warned against brokering new fossil fuel projects thereon, if the world is to achieve its net-zero targets. OPEC+ officials have meanwhile advocated for simultaneous investment in hydrocarbons and renewables, to avoid energy shortages throughout the green transition.
The OPEC group and its non-OPEC partners — critically, including sanctions-struck Russia — will adjourn in Vienna to review their crude oil production policy at the start of next month. OPEC’s second-largest producer, Iraq has so far dismissed the possibility of further reductions.
“At the next meeting, which will be held on the 3rd and 4th (of June), there will be no additional reduction, and as for Iraq, we cannot reduce further,” Iraqi Oil Minister Hayan Abdel-Ghani said last week, in comments reported by Reuters.
Volkswagen has officially cancelled the long-delayed ID.7 electric sedan in America, instead focusing on selling it in Europe and China.
The ID.7 is VW’s electric mid-size sedan offering, currently available (and selling well) in Europe and also in China.
Previously the ID.7 had been intended to launch in 2024 in North America, after launching in Europe in 2023. But when launch time came close, VW delayed the North American debut of the model indefinitely last May.
As recently as October, VW America’s boss Pablo Di Si (who has since moved on) said that the ID.7 could still come in 2025.
But now we know that that indefinite delay is now fully definite: the model has been canceled in the US and Canada.
The news was broken yesterday by The Car Guide, speaking with a VW Canada representative. We’ve since reached out to VW, who confirmed the news to us.
Automotive News quoted a VW spokesperson saying the decision was made due to “the ongoing challenging EV climate.” Last year in North America, EV sales grew by 9%, faster than the overall auto market which grew at 2.5%, suggesting that the market is in fact more challenging for non-EVs than EVs at the moment. Further, gas car sales have been in long term decline since 2017, whereas EV sales have risen drastically in that time period.
That growth was achieved with very few available sedan models as well, with almost every EV available in America being an SUV-type. Adding additional model availability could open up the market to more buyers who want a right-sized vehicle instead of a land yacht.
But VW has been having a challenging time itself in the US. Until recently, it only offered a single SUV model, the ID.4, in the US. While the ID.4 has brought a lot of upgrades recently, it’s also one of the few vehicles whose sales were down in a growing market (which was true even before the stop sale which has now been lifted after fixing a door handle problem). Perhaps VW could have benefitted from offering a vehicle in a different format.
VW had previously blamed its delay of the ID.7 on “market conditions.” It didn’t specify which market conditions it was referring to, but we have some suspicions.
Manufacturers have a belief that Americans only want SUVs (or so they say – really, this is at least partially driven by emissions rules), and the ID.7 is not one. Although VW at one point did try to portray it as one – when we first saw the ID.7 it was in the guise of the “Space Vizzion” concept, and VW said it “combines the aerodynamic qualities of a Gran Turismo with the generous interior space of an SUV,” trying to leverage Americans’ supposed desire only for land yachts by portraying a somewhat more sensible wagon as something it’s not.
That said, the car likely would have been higher-priced than the ID.4, as it is in Europe. The best-selling electric sedan in the US is the Tesla Model 3, with few other options outside of the luxury market. The ID.7 could have offered an alternative for buyers who are looking for something that isn’t associated with Tesla CEO Elon Musk, but its likely high starting price might have limited that appeal.
But while this is a disappointment for those of us waiting for more right-sized electric vehicles, it doesn’t mean the end for new VW EVs in the US. Automotive News quoted a VW spokesman as saying that “electric vehicles continue to be a core part of Volkswagen’s long-term product strategy, and new electric models will continue to be introduced for this market.” So, stay tuned for more.
Well, if you still want an electric VW, there’s always the ID.4. To contact a local dealer and see if they have any VW ID.4s ready to sell, feel free to use our link. You can also reach out about the ID.Buzz, if a quirky electric minivan is more your speed.
Charge your electric vehicle at home using rooftop solar panels. Find a reliable and competitively priced solar installer near you on EnergySage, for free. They have pre-vetted installers competing for your business, ensuring high-quality solutions and 20-30% savings. It’s free, with no sales calls until you choose an installer. Compare personalized solar quotes online and receive guidance from unbiased Energy Advisers. Get started here. – ad*
FTC: We use income earning auto affiliate links. More.
Environment
Shares of Nextracker soar on stellar earnings. What we need to see before upgrading the stock
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports10 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway