The International Energy Agency (IEA) has again raised its global oil demand growth forecast for 2024. However, its projection remains lower than the expectations set by the Organisation of Petroleum Exporting Countries (OPEC). The IEA also said the market looked well supplied because of strong growth outside the producer group.
The IEA expects oil demand to peak by 2030 as the world shifts to cleaner fuels. However, OPEC dismissed this view in an article published on Wednesday. The IEA, which advises industrialised countries, on Thursday predicted global consumption would rise by 1.24 million barrels per day (bpd) in 2024. This is the third consecutive upward revision in as many months but was below OPEC’s 2.25 million bpd projection.
With the conflict in the Middle East raising concerns over supply, the IEA said that – barring significant disruptions to flows – the market looked reasonably well supplied in 2024 and a surplus could emerge if OPEC and its allies (OPEC+) unwind output cuts as scheduled in the second quarter this year.
The IEA’s latest upward demand growth revision, up 180,000 bpd from its previous projection, was linked to improving global economic growth and lower crude prices in the fourth quarter plus China’s expanding petrochemicals sector.
“The consensus economic outlook has improved somewhat over the last few months in the wake of the recent dovish pivot in central bank policy,” the Paris-based IEA said in its January report. “The fourth-quarter 2023 slump in oil prices acts as an additional tailwind,” it added.
Oil prices kicked off the year on a weak footing as demand uncertainty offset the impact of a new round of supply cuts by OPEC+, and rising tensions in the Middle East. Brent crude was trading around $78 a barrel on Thursday, holding on to early gains after the IEA report was published, having lost about 10 per cent in 2023 to finish the year at $77.04.
What IEA predicts for oil markets
The IEA said the expected halving in the rate of demand expansion year on year in 2024 is the result of post-pandemic recovery being all but complete, lacklustre economic growth in major economies, energy efficiency improvements and a booming electric vehicle fleet.
At the same time, the IEA expects world oil supply to rise by 1.5 million bpd to a new high of 103.5 million bpd in 2024, fuelled by record-setting output from the United States, Brazil, Guyana and Canada.
“Barring significant disruptions to oil flows, the market looks reasonably well supplied in 2024, with higher-than-expected non-OPEC production increases set to outpace oil demand growth by a healthy margin,” said the report.
Rising geopolitical tensions in the Middle East, which the IEA says accounts for a third of the world’s seaborne oil trade, have perturbed markets. Attacks by Iran-allied Houthi militia on ships in the Red Sea since November have slowed trade between Asia and Europe and alarmed major powers in an escalation of the war between Israel and Palestinian Hamas militants in Gaza.
Around 10 per cent of the world’s oil trade by sea passes through the Suez Canal, and shipping delays add pressure to global supply chains and push up freight costs. The IEA warned that “a rising number of ship owners are diverting course from the Suez Canal, delaying deliveries of oil and other commodities”.
This could disrupt the flow of oil via key trade chokepoints. As non-OPEC output rises, the producer group and the wider OPEC alliance have implemented a series of output cuts since late 2022 to support the market. A new cut for the first quarter took effect this month.
While these cuts may tip the market into a small deficit at the start of the year, the IEA said the strong non-OPEC growth could lead to a ‘substantial surplus’ if the extra round of voluntary cuts is unwound in the second quarter of CY24.
With inputs from Reuters, Bloomberg
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