Global demand for crude oil could see a bigger surge than traders and analysts have penciled in for 2023 as China fully reopens its economy and the world puts the COVID-19 pandemic behind it, one of the world’s top oil traders argued Thursday.
“If demand came back to trend in 2023, that would mean a demand growth of 4.6 mbd (million barrels a day) vs 2022, way above most analysts expectations of 1-2 mbd demand growth,” said Pierre Andurand, founder of Andurand Capital, in a Twitter thread.
In the thread, Andurand looked at the pandemic-related hit to oil-demand growth versus the long-term trend. Past hits to demand growth have seen a quick return to trend, he noted.
But a full return to the trend might not be in the cards, Andurand cautioned. The main reason is the increasing adoption of electric vehicles.
He noted that from 2019 to 2023, 35 million new EVs will have been sold, representing a loss of 600,000 barrels a day of oil demand. Russia’s invasion of Ukraine has also delivered a shock, Andurand said, which could deliver a 300,000 barrel a day hit to demand.
Partially offsetting those hits to demand is the potential for more “revenge” travel, some switching to oil from natural gas by power suppliers in response to an earlier surge in natgas prices, and global population growth.
“So, overall, the potential to see a surge of oil demand of 3-4 mbd sometime in 2023 is there, assuming the world reopens fully,” he calculated.
Oil futures went on a wild ride in 2022. A spike following Russia’s late February invasion of Ukraine sent the U.S. benchmark
to a nearly 14-year high above $130 a barrel in early March. Crude prices subsequently tumbled, with fears of a global slowdown or recession stoked by aggressive interest rate hikes by the Federal Reserve and other major central banks.
West Texas Intermediate crude was trading below $78 a barrel on Thursday, holding on to a year-to-date gain of just 3% and well below its close of $92.10 on Feb. 23, the eve of Russia’s invasion of Ukraine. Brent crude
the global benchmark, was trading below $83 a barrel, up 6.2% for the year to date, but down from its pre-invasion close of $94.05.
Energy stocks have retreated from their highs but have massively outperformed their peers in 2022. The S&P 500 energy sector remains up nearly 58% in the year to date, as reflected by a 56% gain for the Energy Select Sector SPDR
The S&P 500
was on track for an annual drop of more than 19%.
Bloomberg earlier this month reported that Andurand Capital’s largest fund had pared its year-to-date gain to 50%. Andurand scored huge returns in 2020 and 2021 on prescient energy-market bets, according to news reports.