The International Energy Agency (IEA) declared on Thursday that world oil demand is poised to increase at a faster pace than previously projected in the coming year. Despite the COP28 agreement signaling a transition away from fossil fuels, the IEA’s projection indicates ongoing strength in the near-term outlook for oil consumption.
Demand Surge and Updated Forecast
According to the IEA’s monthly report, global oil consumption is projected to increase by 1.1 million barrels per day (bpd) in 2024. This reflects an upward revision of 130,000 bpd from the previous forecast, attributed to an improved economic outlook in the United States and lower oil prices. The report highlights the positive impact of falling oil prices on boosting consumption.
Discrepancy with OPEC: IEA
However, there remains a substantial gap between the IEA’s forecast and that of the Organization of the Petroleum Exporting Countries (OPEC). OPEC has a less optimistic view of oil demand prospects for 2024. While the IEA represents industrialized nations and advocates for a rapid transition from fossil fuels, OPEC has its focus on the interests of oil-producing nations.
Economic Outlook and Oil Prices
The IEA’s upward revision for 2024 is attributed to an improved GDP outlook, particularly in the United States. The report suggests that the soft landing in the U.S. is becoming more evident. Additionally, the decrease in oil prices is seen as an additional driver for increased oil consumption.
Global Factors Affecting Demand
Despite the positive outlook for 2024, the IEA adjusted its global demand growth forecast for the current quarter, reducing it by nearly 400,000 bpd to 1.93 million bpd. The adjustment is linked to a worsening economic outlook, with Europe, Russia, and the Middle East being the most affected regions. Factors such as higher interest rates impacting the real economy and a shift in petrochemical activity to China contribute to this adjustment.
Oil Market Dynamics
The report notes that the oil market sentiment turned bearish in November and early December, even after OPEC+ announced production cuts for the first quarter of 2024. The extension of OPEC+ supply cuts has had limited impact on boosting prices, and the market sentiment remains cautious.
Future Challenges for OPEC+
Looking ahead to 2024, the IEA anticipates a slowdown in supply growth from producers outside OPEC+, especially the United States. However, it warns that the continued rise in output and a potential deceleration in demand growth could pose challenges for key oil-producing nations in defending their market share and sustaining elevated oil prices.
Call on OPEC and Production Estimates
The IEA forecasts the average call on OPEC (demand for OPEC crude plus withdrawals from stocks) to be 28.2 million bpd in 2024, dipping to 27.7 million bpd in the first half of the year. OPEC pumped an estimated 28.1 million bpd in November, slightly exceeding the expected demand for OPEC crude in the first half of 2024.
While both the IEA and OPEC forecast global oil demand growth for 2024, there remains a notable discrepancy in their estimates. Factors such as economic developments, geopolitical uncertainties, and ongoing efforts to transition to cleaner energy sources contribute to the complexity of oil demand forecasting.