Oil demand outlook divides IEA and OPEC amidst economic challenges

Rashid Husain SyedThe International Energy Agency (IEA), the energy watchdog for the OECD, notes a growing weakness in demand. However, the Organization of Petroleum Exporting Countries appears to hold a different view.

And the debate is on.

IEA said last Thursday that global oil demand growth is losing momentum, dropping to 1.8 million barrels per day (bpd) in the fourth quarter of 2023 from 2.8 million bpd in the third quarter of 2023. A significant reduction in China’s demand contributed to the fall in global oil consumption in the final quarter of 2023.

The IEA also added that the global oil consumption growth rate is expected to slow further to 1.2 million bpd in 2024, down from 2.3 million bpd in 2023. “The expansive post-pandemic growth phase in global oil demand has largely run its course,” the energy watchdog insisted. The previous IEA projections had said that the demand growth in 2024 would be 1.24 million bpd. Now, it has gone down to 1.22 million bpd.

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A harsher global macroeconomic climate is also likely to constrain growth this year, according to reports. A recent Reuters report noted that Japan had already slipped into recession at the end of last year, surrendering its title as the world’s third-biggest economy to Germany. Britain’s economy, the sixth largest, also fell into recession in the second half of 2023, official data confirmed last Thursday.

While the IEA insists that the global crude demand is slowing, OPEC is sticking to its forecast for relatively strong growth in global oil demand in 2024 and 2025, raising its economic growth forecasts for both years, adding that there was even further upside potential.

In its monthly oil report released last Tuesday, OPEC says that the world oil demand will rise by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025. Both forecasts were unchanged from last month. The OPEC report added that a further boost to economic growth could give an additional tailwind to oil demand. OPEC believes that a “positive trend” for economic growth is expected to extend into the first half of 2024, raising the global economic growth forecasts for 2024 and 2025 by 0.1 percentage points.

“Global economic growth remains robust,” OPEC underlined. “Further upside potential could materialize in all major OECD and non-OECD economies.” OPEC now sees world economic growth of 2.7 percent this year and 2.9 percent in 2025, supported by the expectation of a continued easing in general inflation throughout this year and next.

Even though the IEA sees oil demand peaking over the next few years, OPEC remains optimistic about long-term oil demand projections. Last Tuesday, OPEC’s Secretary General Haitham Al Ghais told Reuters he believed that OPEC’s long-term demand outlook, which looks to 2045, sees no peak in demand and remains robust.

Yet, amid all this debate about the global demand scenario, the markets firmed up last week. Oil prices rose slightly on Friday as geopolitical tensions in the Middle East offset the forecast by the International Energy Agency that warned of slowing demand.

An extreme Arctic freeze affecting major oil-producing areas in the U.S. and Canada led to substantial supply disruptions. These outages coincided with new voluntary production reductions from some OPEC+ members.

Additionally, increasing geopolitical unrest in the Middle East fueled further upward pressure on the market, as oil tankers rerouting away from the Red Sea interrupted the usual supply flows to the worldwide market.

The growing risk of a wider conflict in the Middle East supported crude oil prices. On Thursday, Hezbollah said it fired dozens of rockets at a northern Israeli town in a “preliminary response” to the killing of 10 civilians in southern Lebanon, the deadliest day for Lebanese civilians in four months of cross-border hostilities.

News from the Middle East supported crude oil prices, but the reaction was moderate overall, Giovanni Staunovo, an analyst at UBS, told Reuters. “The market sees oil still flowing and disruptions have been small,” he said.

Oil markets are passing through an interesting phase. Fundamentals do not seem to support the current surge in oil market prices. Geopolitical issues and weather continue to sway the market prices. The long-term outlook does not appear strong.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.

For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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