TLDR:
- IEA predicts a continued rise in oil prices in 2023 due to OPEC+ cuts and global demand.
- Oil inventories could decrease significantly this year, driving prices higher, before economic headwinds affect demand in 2024.
- Tightened supply from OPEC+ cuts and strong demand have led to a rally in oil prices, reaching highs of over $88 per barrel.
- Global oil supply dropped in July due to Saudi output reduction, while Russian oil exports remained steady.
- IEA predicts demand growth slow down in 2024 to 1 million bpd, citing economic challenges and increased electric vehicle adoption.
Oil prices are set to maintain an upward trajectory through 2023 as OPEC+ supply cuts and robust global demand continue to bolster the market, according to the International Energy Agency (IEA). The ongoing supply constraints, driven by coordinated output reductions from OPEC and its allies, have led to a surge in oil prices, with Brent crude reaching its highest level since January at over $88 a barrel.
The IEA’s recent oil market report indicates that if OPEC+ adheres to its current production targets, global oil inventories could shrink by 2.2 million barrels per day (bpd) in the third quarter and by 1.2 million bpd in the fourth quarter. This, the agency says, holds the potential to further escalate oil prices.
The energy watchdog stated that the combination of substantial OPEC+ supply cuts, improved macroeconomic sentiment, and record-high global oil demand has been pivotal in driving prices higher. These factors have culminated in a tighter supply-demand balance, contributing to the rally in oil prices.
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Notably, the Organization of the Petroleum Exporting Countries (OPEC) and its partner nations initiated supply restrictions in late 2022, aiming to stabilize the market. These measures were extended into 2024 in June.
The IEA highlighted that July witnessed a sharp decline in global oil supply, primarily due to a significant reduction in Saudi output. However, Russian oil exports remained stable at around 7.3 million bpd during the same period.
Looking ahead to 2024, the IEA predicts a substantial deceleration in demand growth to approximately 1 million bpd. This projected slowdown is attributed to lackluster macroeconomic conditions, the waning momentum of post-pandemic recovery, and the increasing adoption of electric vehicles.
The agency indicated that as the initial rebound from the pandemic concludes and multiple challenges persist in the economic outlook of Organisation for Economic Co-operation and Development (OECD) nations, the pace of oil consumption gains is expected to diminish.
Interestingly, the IEA’s projection of demand growth for 2024 differs from that of OPEC. While the IEA foresees a more modest rise of 1 million bpd, OPEC maintains a more bullish estimate of 2.25 million bpd for the same period.
The IEA underlined that the global economic landscape remains complex, characterized by escalating interest rates and tighter credit conditions, which are affecting businesses already grappling with sluggish manufacturing and trade.
For the current year, the IEA and OPEC’s forecasts for demand expansion are more closely aligned. The IEA anticipates demand to increase by 2.2 million bpd in 2023, bolstered by factors such as summer air travel, increased oil consumption in power generation, and robust petrochemical activity in China. OPEC projects a slightly higher rise of 2.44 million bpd.
Overall, the IEA’s outlook predicts that global demand will average 102.2 million bpd for the year, with China contributing to over 70% of this growth, despite concerns surrounding the economic health of the world’s leading oil importer.
