IEA Forecasts Accelerated Growth in Global Oil Demand for the Coming Year

The International Energy Agency (IEA) announced on Thursday that global oil demand is expected to rise at a faster pace than previously anticipated in the coming year. This optimistic outlook indicates continued strength in near-term oil consumption despite the recent COP28 agreement, which aims to transition away from fossil fuels. While this marks a positive revision, a notable disparity persists between the IEA, representing industrialized nations, and the OPEC producer group regarding their forecasts for 2024 demand.

The IEA's projection suggests that world oil consumption will increase by 1.1 million barrels per day (bpd) in 2024, up by 130,000 bpd from its earlier estimate. This adjustment is attributed to an improved outlook for the United States and lower oil prices. The agency noted that the upgraded forecast for 2024 reflects a more positive Gross Domestic Product (GDP) outlook, particularly in the U.S., where a soft landing is becoming evident. The decline in oil prices also serves as an additional stimulus to oil consumption.

Despite advocating for a swift transition from fossil fuels, the IEA revised down its global demand growth forecast for the current quarter by almost 400,000 bpd to 1.93 million bpd due to a deteriorating economic outlook. The adjustment is primarily attributed to Europe, Russia, and the Middle East, with higher interest rates impacting the real economy and a shift in petrochemical activity to China undermining growth in other regions. Oil prices, after a period of decline, rebounded over 3% following the release of the IEA report, trading near $77 per barrel.

In the same report, the IEA also reduced its forecast for oil demand growth in 2023 by 90,000 bpd to 2.3 million bpd. Notably, China accounts for 80% of the global rise in oil demand for the current year. The anticipated halving in the rate of demand expansion in 2023 is attributed to below-trend economic growth in major economies, efficiency improvements, and the growing presence of electric vehicles.

Despite OPEC+'s announcement of new production cuts for the first quarter of 2024, oil prices remained subdued, and market sentiment turned bearish in November and early December. The IEA predicts that in 2024, supply from producers outside OPEC+ will increase by 1.2 million bpd, a deceleration from the 2.2 million bpd growth observed in the current year, primarily driven by the United States. The combination of this supply increase and the slowdown in demand could pose challenges for OPEC+ in defending market share and sustaining elevated oil prices.

The IEA foresees the global demand for OPEC crude plus withdrawals from stocks, known as the call on OPEC, averaging 28.2 million bpd in 2024, dipping to 27.7 million bpd in the first half of the year. OPEC, in its monthly report, maintained its forecast for world oil demand growth in 2023 at 2.46 million bpd and projected demand growth of 2.25 million bpd in 2024.

While the gap between the IEA and OPEC 2024 demand growth forecasts has narrowed slightly, it still stands at 1.15 million bpd. This difference, roughly equivalent to 1% of daily world oil use and the daily production of an OPEC member such as Libya, highlights the challenges faced by oil demand forecasters. These challenges include navigating changes in the economic outlook and geopolitical uncertainties, such as China's lifting of coronavirus lockdowns and rising interest rates, which can prompt substantial revisions in oil demand forecasts.