The International Energy Agency (IEA) revised up its estimate of the growth in oil demand in 2024 on Thursday. Still, it’s much lower than what The Organisation of the Petroleum Exporting Countries (OPEC+) had anticipated.
The Paris-based agency revised its forecast upward for the third time in as many months, predicting that global oil consumption in 2024 will be 1.24 million barrels per day (bpd) higher than the OPEC+ 2.25 million bpd estimate.
Concerns about long-term demand and the requirement for investment in new supplies have led to conflicts between OPEC+ and the IEA in recent years.
The fourth quarter’s lower crude prices, combined with China’s growing petrochemicals industry and improving global economic growth, were the main drivers of the IEA’s most recent upward revision, which increased output by 180,000 bpd from its initial estimate.
“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 IEA January report included.
“The fourth-quarter 2023 slump in oil prices acts as an additional tailwind.”
Rising Middle East tensions and a fresh round of supply cuts by OPEC+ and its allies had little effect on oil prices at the beginning of the year due to demand uncertainty.
On Thursday, Brent crude was trading at roughly $78 per barrel. At the end of 2023, it had lost roughly 10 per cent of its value, closing at $77.04.
According to the IEA, the nearly full post-pandemic recovery, sluggish economic growth in major economies, advances in energy efficiency, and a rapidly expanding fleet of electric vehicles are the main causes of the anticipated halving in the rate of demand expansion year over year in 2024.
Market concerns
Markets have been agitated by growing geopolitical tensions in the Middle East, which the IEA claims is responsible for one-third of the global seaborne oil trade.
Since November, attacks on ships in the Red Sea by the Houthi militia, which is allied with Iran, have slowed trade between Asia and Europe and alarmed major powers, escalating the conflict between Israel and Palestinian Hamas militants in Gaza.
This might impede the flow of oil through important chokepoints in trade, even though more ship owners are rerouting cargo out of the Red Sea.
Although OPEC+ and the larger group’s alliance have been cutting production since late 2022 to support the market, the IEA stated that “the market looks reasonably well supplied in 2024” barring major disruption to oil flows. This month saw the implementation of a new first-quarter cut.
The IEA forecast that robust growth from producers outside the OPEC+ group, such as the United States, Brazil, and Guyana, could result in a significant surplus if the extra voluntary cuts are unwound in the second quarter, even though these cuts may tip the market into a slight deficit at the beginning of the year.
