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Daily Update: March 17, 2023

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Daily Update: March 17, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Oil Demand Bounces Back on China’s Return

Russia’s invasion of Ukraine and the associated sanctions caused a spike in crude prices in early 2022. Prices fell as the year went on, largely due to limited demand from China, which was still undergoing travel restrictions related to the COVID-19 pandemic. Now, with COVID-related restrictions mostly lifted, pent-up demand for movement is likely to drive increased demand for oil from the country. Increased global demand and restrictive quotas from OPEC and its allies should lead to higher prices at the pump, but oil markets are rarely predictable.

On March 5, China's National People's Congress set new growth targets for 2023. Retiring Prime Minister Li Keqiang set a 5% gross domestic product growth target for 2023. China’s GDP growth in 2022 stood at only 3%. According to analysts at S&P Global Commodity Insights, this new GDP growth target will lead to an about 6% increase in oil demand. The transportation sector will drive much of this due to travel and industrial logistics, now that most COVID-19 controls have been lifted.

On March 15, the International Energy Agency announced that the global economic outlook has benefited from China's economic momentum. As a result, the IEA raised its estimate for global oil demand in 2023 by another 100,000 barrels per day. According to the IEA’s latest monthly oil market report, it believes that global oil demand will average 102.02 million b/d in 2023, 2 million b/d higher than in 2022. Mike Miller, head of Vitol Asia, also suggested that China's oil demand could increase substantially in 2023 due to COVID-19 restrictions being lifted, robust domestic consumption and attempts to build up inventories.

OPEC took a different view, keeping its 2023 global oil demand estimate largely unchanged from 2022. OPEC suggested that weak demand in some Western economies will offset the expected Chinese demand growth. OPEC forecasts China's oil consumption to rise 500,000 b/d year over year in the first quarter and 1,000,000 b/d year over year in the second quarter. The organization suggested that, since sanctions appear to be having little effect on Russian oil output, it would be unnecessary for OPEC countries to produce more crude to balance the market, despite the anticipated increase in Chinese demand.

While Russia’s output has been down year over year since sanctions took effect, the country has successfully rerouted most of its oil production from the EU and U.S. to new outlets in Asia, Africa and the Middle East. Vitol’s Miller suggested that this represents "a visible realignment of trade flows."

The IEA expects 2023 non-OPEC supply growth to increase by 300,000 b/d, with greater output from the U.S., Brazil, Norway, Canada and Guyana. S&P Global Commodity Insights analysts believe that increased demand, mainly led by China, will put pressure on prices in the second half of the year as demand outstrips supply.

Today is Friday, March 17, 2023, and here is today’s essential intelligence. The next edition of the Daily Update will be Monday, March 27.

Written by Nathan Hunt.


Emerging Markets Monthly Highlights: Diverging Trends Are Underway

Financing conditions have tightened across emerging markets (EMs). As S&P Global Ratings pointed out in its previous report, improvement in financial conditions in December-January was largely caused by excessively dovish market expectations with regards to the Federal Reserve’s tightening. Consequently, after the change in market perceptions in February, spreads have broadly widened across most EMs. EM exchange rates have also depreciated last month, but developments in the U.S. in the past few days may partially reverse the trend due to renewed expectations of a less tight monetary stance, and subsequently, a weaker U.S dollar.

—Read the report from S&P Global Ratings

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Capital Markets

SVB Default And Asia-Pacific Banks: Secondary Effects Are The X-Facto

Asia-Pacific banks are well-placed to absorb potential contagion effects emanating from the Silicon Valley Bank (SVB) collapse. Direct exposures are negligible, and secondary impacts are manageable. Only a significant escalation would be sufficient to change our view. Some Japanese banks, which have large holdings of U.S. government bonds are among the most exposed to weakened market sentiment because of SBV, but not to the extent where we anticipate any imminent rating changes.

—Read the report from S&P Global Ratings

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Global Trade

Pakistan's Wheat Imports From Russia Surge Eightfold On Supply Disruption From Ukraine

Pakistan's wheat imports from Russia have surged more than eightfold due to disruptions in supply from Ukraine. In the first eight months of the 2022–23 marketing year, Pakistan, the fifth-most populous country in the world, rose to the position of fifth-largest importer of Russian wheat. Ukraine was the primary wheat supplier to Pakistan in the previous marketing year 2021-22 with exports to the country reaching 1.3 million mt. But the Russia-Ukraine war has disrupted this supply, making Russia the top exporter of wheat to the country. Russia has provided almost 1.5 million mt of wheat in the current marketing year.

—Read the article from S&P Global Commodity Insights

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Barriers Remain To Commercial CCS Rollout In Europe, Despite High Carbon Price

Carbon capture and storage developers say they still require state support to get projects up and running, despite record-high carbon prices that now cover much of the cost of the process, because of risks posed by relatively immature technology, a lack of an established economic model and the early stage of industry development. The EU Emissions Trading System carbon price breached Eur100/mt for the first time on Feb. 21, and has remained at elevated levels, assessed at Eur95.68/mt ($102.49/mt) on March 13, according to Platts assessments from S&P Global Commodity Insights.

—Read the article fro S&P Global Commodity Insights

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Energy & Commodities

Listen: What Is Next For Africa's Oil Products Markets?

In this episode of the Platts Oil Markets podcast, Francesco Di Salvo is joined by Gary Clark, Patrick McAllister and Matthew Tracey-Cook to explore the theme of evolving standards and specifications for transport fuels in the continent reflecting on the main takeaways of ARDA Week 2023.

—Listen and subscribe to Platts Oil Markets, a podcast from S&P Global Commodity Insights

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Technology & Media

USENIX Enigma 2023: The (Cybersecurity) Rubber Hits The Road

Data privacy and protection practices within enterprises still often lack firm, dedicated leadership and responsibility despite the fact that businesses today tend to collect and maintain more sensitive/personal data than ever before. According to 451 Research's Voice of the Enterprise: Data & Analytics, Data Governance & Privacy 2022 survey, only 61.6% of respondents reported that their organization has a chief privacy officer. The general IT function still held the primary responsibility for managing data privacy and protection requirements in 41.3% of cases, with only 11.3% reporting that a "dedicated data privacy team" was at the helm of these specific efforts.

—Read the article from S&P Global Market Intelligence

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