In August 2022, global refinery intake level has reached 81 mb/d, the highest monthly level registered since the emergence of the COVID-19 pandemic (Graph 1). The strong product consumption during the summer season, amid positive fuel requirements from the industrial and manufacturing sectors, led to an increase of 2.5mb/d, y-o-y. However, in September, refinery intake fell by nearly 1.2 mb/d m-o-m with the start of peak autumn refinery maintenance in the US and Europe. Meanwhile, global oil demand is now expected to grow by about 2.6 mb/d in 2022.

However, risks are skewed to the downside, with slowing growth in the global economy, if continued, likely leading to lower oil demand in the months to come. While the first half of the year saw good levels of mobility, industrial activity and petrochemical feedstock requirements, the momentum has seen a slowdown due to reduced economic activity in recent months. A decrease in product output since last year due to refinery closures, pipeline and weather issues and other constraints, weighed heavily on total OECD product inventories, raising refinery margins to record-high levels. On the US Gulf Coast, refinery margins soared to a record high of $49.92/b in June. Nevertheless, Graph 1: Refinery intake seasonal demand for gasoline throughout the driving season in the US was lower than expected, showing y-o-y declines from June to September 2022. In China, the government’s zero-COVID policy restrictions led to a y-o-y decline in oil demand in 2Q22, followed by a brief recovery in 3Q22. The newly announced lockdowns are expected to add to the uncertainty going forward. Looking ahead, refinery runs are expected to slow going into 4Q22 as heavy maintenance work unfolds globally.

However, ongoing tightness in product availability, particularly for gasoil, should remain supportive for refinery runs, along with expectations of a slight pick-up in diesel consumption for heating demand amid some additional potential for gas-to-oil switching. This will also depend on the severity of the winter in the Northern Hemisphere. Nevertheless, current signs of economic slowdown may further soften oil market fundamentals beyond the seasonal refinery turnaround period. Looking to the coming winter season, a seasonal pick-up in heating oil demand due to rising requirements in the Northern Hemisphere is projected. In 4Q22, OECD Europe and Americas, as well as OECD Asia Pacific, are expected to see an increase in demand for fuel oil and distillates required for heating (Graph 2). In addition, rising natural gas prices will potentially lead to some degree of gas-to-oil switching in power generation in both Europe and Asia, supporting demand for residual fuels, heating oil and other fuels, which are forecast to grow by 0.5 mb/d y-o-y in 4Q22. In OECD Europe and the US, heating oil will be the main driver, followed by residual fuels, while in OECD Asia Pacific, residual fuels and other fuels are expected to drive heating fuel demand.

In 1Q23, global demand Graph 2: Heating fuels demand in OECD, y-o-y change for heating fuel is expected to grow by 0.6 mb/d, y-o-y. OECD Europe is expected to account for the largest increase by 0.4 mb/d, mostly heating oil. Heating fuel demand in OECD Asia Pacific is also expected to grow by 0.1 mb/d, y-o-y, while the US is forecast to show only marginal y-o-y growth. Looking ahead, and despite the usual seasonal hike in oil demand for heating, the challenges presented by the heightened levels of uncertainty, the slowing economic growth and a possible resurgence of COVID restrictions in China and elsewhere are expected to impact oil demand in 2022 and 2023. With this in mind, the participating countries of the Declaration of Cooperation (DoC), in their 5th October 2022 meeting have pre-emptively and proactively decided to adjust their overall production, starting November 2022, downward by 2 mb/d (from the August 2022 required production levels), in an ongoing and relentless effort to provide a sustainable stability to the market.
Source: OPEC