CHINA is expected to account for around 40 per cent of the increase in global oil demand this year as its economy emerges from strict lockdowns, but the increased use will not take prices back to 2022 levels, consultancy Wood Mackenzie said on Thursday.

In a base-case scenario, China’s economy will grow by 5.5 per cent this year after it lifted its Covid-19 containment strategy, WoodMac said in a report.

This would equate to 1 million barrels per day (bpd) of a 2.6 million bpd increase in global oil demand this year.

A high-growth scenario, under which China’s GDP rises by 7 per cent, would add a further 400,000 bpd of Chinese demand, the report said.

This year’s average price of Brent crude oil, however, would remain below the US$99/bbl average seen in 2022 as “markets have now adapted to the chaos brought about by Russia’s war on Ukraine,” the report said.

Barring a significant recession, WoodMac sees Brent rising from current levels of around US$75/bbl, to average US$89.40/bbl this year. The higher GDP growth scenario in China would add up to US$5/bbl.

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Following this month’s market turmoil in the banking sector, the group said it did not see any major changes to fundamentals of supply and demand and expects oil prices to recoup losses, Mark Williams, WoodMac’s research director for short-term oils, told reporters at a briefing.

Global refining margins are set to decline to around US$6/bbl in the fourth quarter compared with US$11/bbl a year earlier, WoodMac said, as additions to global refining capacity outpace demand growth for transport fuels.

The higher GDP growth scenario would lower China’s exports of petrol, jet, diesel, and gasoil as domestic consumption rises, supporting global refining margins by a further 50 cents/bbl in the fourth quarter, the report found.

“We have over 2 million bpd of capacity coming online this year. Losing an additional 100,000 bpd of China exports my not be the end of the world,” Williams said.

The consultancy expects diesel profit margins to crude to average US$30/bbl in the fourth quarter, while petrol is expected to average around US$5-6/bbl, Williams said. REUTERS