Aramco Predicts Increase in Oil Demand Due to China's Recovery and Aviation Resurgence

The largest oil company in the world is optimistic that demand will increase significantly in 2023 as China resumes its economic activity and the aviation industry rebounds.

Amin Nasser, the CEO of Saudi Aramco, expressed his optimism in an interview regarding the return of demand to the market. He noted that there were positive signs coming from China and he hoped that the economy there would experience a surge in the upcoming months.

Nasser reported that the demand for jet fuel is currently around 1 million barrels a day lower than it was prior to the pandemic, which is about half of what it was a year ago. He mentioned at the World Economic Forum in Davos that the demand is beginning to increase.

The International Energy Agency (IEA) has warned that the oil market is facing an even larger surplus, even as China begins to reopen its economy. This could have a significant impact on the global oil market, as China is the world's largest oil importer. The IEA has stated that the surplus could be even larger than previously expected, due to the current economic situation.

In 2022, the price of oil experienced a rollercoaster ride. After Russia's attack on Ukraine, Brent crude skyrocketed to nearly $130 a barrel, but has since dropped due to economic slowdowns in China, the United States, and Europe. Currently, it is trading at around $86.30 a barrel, showing a slight increase of 0.5% since the end of December.

Several Wall Street banks, including Goldman Sachs Group Inc., anticipate that the price of oil will surpass $100 a barrel in the latter half of the year. This is due to the global economic recovery, depleted fuel reserves in countries like the US, and the possibility of Russian exports decreasing as the West imposes sanctions.

Aramco, the world's second most valuable company after Apple Inc., experienced a 25% decrease in its stock prices between August and mid-December, despite the Saudi firm being on track to have its most profitable year since its listing in Riyadh in 2019. However, the stock has since seen a 6% increase, giving Aramco a market capitalization of $1.9 trillion.

Nasser emphasized the importance of increased investment in oil production. He noted that the current idle capacity is only 2 million barrels a day, which is just above the total demand of 100 million barrels. He predicted that this number will likely decrease as China lifts its coronavirus restrictions.

The CEO has stated that the world requires between 4 and 6 million barrels of new production each day in order to compensate for the natural decrease in existing fields.

He noted that as we move forward, the amount of extra resources available is decreasing, and any disruptions in supply will have a major effect.

He noted that the same kind of situation could occur with our current resources, citing the example of natural gas prices skyrocketing to the equivalent of $250 a barrel after Russia's invasion.

The Saudi Arabian government-owned company anticipates that oil demand will remain strong throughout the remainder of the decade, despite the increasing prevalence of electric vehicles and the influx of investments into renewable energy sources.

The CEO noted that some of the demand for oil is being reduced, yet they are certain that oil consumption will increase by 2030.

He noted that the growing utilization of petrochemicals, which are used to create plastics, fertilizers, and apparel, is beneficial for Aramco.

Nasser stated that the company is aiming to convert 4 million barrels of crude oil into petrochemicals by the end of the decade. To achieve this goal, they are considering investing in Chinese refineries and liquid-to-chemical plants.

He stated that they are having serious conversations with a number of organizations in China.

In 2019, Aramco and Sabic, its chemicals subsidiary, announced their intention to construct a refinery with a capacity of 320,000 barrels per day in the Chinese coastal town of Gulei.

The Saudi firm Aramco is investing billions of dollars in hydrogen, which is seen as a key factor in the shift to cleaner energy. Their goal is to export blue hydrogen, which is created by transforming natural gas and capturing the carbon dioxide released in the process, on a large scale beginning in 2030.

Discussions with potential buyers in Japan and South Korea are advancing, though they may need to receive assurances of financial backing from their respective governments before they agree to any supply agreements, according to Nasser.

He expressed that they anticipate they will be able to accomplish it by 2023, but it remains to be seen.

According to Nasser, blue hydrogen could potentially cost the same as $250 per barrel of oil, but Aramco will need to conduct further research to determine the exact amount.

He stated that the cost would not be as low as $80 or $100, as it was a cleaner product and thus more expensive.

Engaging in discussions with European companies is proving to be more difficult, mainly because they are waiting for technological progress to reduce the cost of blue hydrogen.

Nasser commented that securing an off-take agreement is particularly challenging in Europe.