Energy trilemma – affordability, security and sustainability

The Year of the Tiger was marked by three major paradigm shifts; the commencement of war in mainland Europe, the energy trilemma, and China’s longer-term economic growth dynamics. These changes have been fundamental drivers of commodity markets through 2022 and as we move into 2023, much uncertainty remains.

The pillars of the energy trilemma – affordability, security and sustainability – look precarious. Amidst fears of recession and changes in trade flows following the Russia-Ukraine war, security remains the primary concern of many countries.

The oil and refining markets endured another bumpy ride in 2022. At the start of the year, strong oil demand growth was forecast, as the economy continued its recovery from the global pandemic. But unprecedented challenges soon emerged.

In Europe, Russia’s invasion of Ukraine introduced huge geopolitical uncertainties and caused energy prices to soar. In China, the shadow of Covid-19 loomed large, with large parts of its petrochemical and manufacturing sector locked down for many months in the first half of the year.

Central banks abruptly switched tack as rocketing energy prices stoked inflation, though high prices certainly slowed demand growth. Recession fears escalated in the second half of the year. The EU’s crude import ban and G7 price caps have now also come into force, with the refined product import ban scheduled for 5 February 2023.

Against this tumultuous backdrop, what are the key themes and trends to watch in 2023? What fresh challenges lie ahead, and how will the oil and refining markets respond?

We shared our predictions in Global oil and refining markets: what to watch in 2023. Fill in the form for a complimentary copy, and read on for a brief introduction.

Global oil demand in 2022 grew over 2 million b/d from 2021, but remained just under 2 million b/d below pre-pandemic levels. Russian crude oil exports largely continued to flow, although they were mostly diverted away from Europe to India, China and Turkey.

As per Wood Mackenzie forecast, global oil supply growth outpaced demand growth by almost 2.5 million b/d year-on-year. Crude oil inventories re-built, and oil prices weakened towards year-end.

Pandemic-driven refinery closures, self-sanctioning by many European companies and low product export quotas from China tightened the refined product markets.

Refining margins hit record highs during the summer months.

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