The International Energy Agency (IEA) has again raised its 2024 global oil demand growth forecast, though its projection remains lower than OPEC’s expectations, and said the market looked well supplied because of strong growth outside the producer group.
The IEA and the Organization of the Petroleum Exporting Countries (OPEC) have clashed in recent years over issues such as future oil demand. The IEA expects oil demand to peak by 2030 as the world shifts to cleaner fuels, a view OPEC dismissed in an article on Wednesday.
The IEA, which advises industrialized countries, on Thursday predicted global consumption will rise by 1.24 million barrels per day (bpd) in 2024. This was its third consecutive upward revision in as many months but was below OPEC’s 2.25 million bpd projection.
With conflict in the Middle East raising concern 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 unwind output cuts as scheduled in the second quarter.
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.”
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 its allies, together known as OPEC+, as well as 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.
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,” the report said.
Rising geopolitical tensions in the Middle East, which the IEA says accounts for a third of the world’s seaborne oil trade, has 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.
This could disrupt the flow of oil via key trade choke points, though a rising number of ship owners are diverting cargoes away from the Red Sea.
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.