IEA Projects Oil Demand Growth Despite Economic Slowdown

Oil industry forecast

The International Energy Agency (IEA) has revised its projections for oil demand, foreseeing growth for this year and the next, despite a sluggish economic pace in major economies worldwide. The agency’s outlook for 2024, however, remains notably lower compared to that of the Organization of the Petroleum Exporting Countries (OPEC).

In its recent report, the Paris-based IEA highlighted the possibility of the market transitioning into surplus at the beginning of 2024. This shift follows a prolonged period of significant deficit, primarily sustained by deliberate cuts in production by key players like Saudi Arabia and Russia, slated to continue until the year-end.

The IEA cautioned that while oil demand continues to outstrip available supplies, especially with the Northern Hemisphere winter approaching, the market remains susceptible to heightened economic and geopolitical risks. This scenario could potentially lead to further volatility ahead.

Despite concerted efforts and supply cuts from OPEC and its allied nations, oil prices have dipped to around $82 per barrel for Brent crude, down from the 2023 peak of nearly $98 in September. Concerns regarding economic growth and demand persist despite ongoing conflicts in the Middle East.

The IEA’s revised forecast aligns with OPEC’s recent upward revision in oil demand growth for 2023. Factors such as robust U.S. deliveries and record-breaking demand from China in September have bolstered the demand outlook for the year.

For 2023, the IEA anticipates a rise in global demand by 2.4 million barrels per day (bpd), up from the previously projected 2.3 million bpd, inching closer to OPEC’s forecast of 2.46 million bpd.

However, the IEA’s projections for 2024 paint a different picture. Despite a slight upward revision to 930,000 bpd from 880,000 bpd, it significantly lags behind OPEC’s forecast of 2.25 million bpd. This divergence, roughly equivalent to 1 percent of daily global oil use, emphasizes the disparity in long-term demand outlook between the two organizations, Reuters news report said.

The IEA attributes the 2024 slowdown in demand growth to various factors, including anticipated interest rate cuts and the recent decline in crude prices. Structural changes such as expanding electric vehicle fleets, advancing energy efficiency gains, and the final phase of the pandemic’s economic rebound also contribute to this forecasted deceleration.

The disparities between OPEC and the IEA forecasts have historically led to debates concerning long-term oil demand outlook and the necessity for investments in new supplies. The upcoming meeting of OPEC and its allies, scheduled for November 26, will likely focus on the 2024 outlook. While the existing deal limits supply into 2024, the voluntary cuts by Saudi Arabia and Russia will continue until the year-end.