The International Energy Agency (IEA) on May 15 lowered its forecast for 2024 oil demand growth, widening the gap with the oil producer group Organisation of Petroleum Exporting Countries (OPEC) in terms of the expectations for this year’s global oil demand outlook. The divide between the IEA and OPEC sends divergent signals about the oil market strength in 2024, according to analysts.
The gap between the IEA and OPEC is now even wider than it was earlier this year, when an analysis by news agency Reuters found that the difference of 1.03 million barrels per day (bpd) in February was the biggest since at least 2008.
Also Read: India’s crude oil consumption up 4.6% in FY24, output rises marginally at 0.6%, imports steady: PPAC
IEA vs OPEC: Diverging oil projections
Global oil demand this year will grow by 1.1 million bpd down 140,000 bpd from the previous forecast, largely indicating weak demand in developed OECD nations, said the Paris-based agency gathering of the 31 mostly industrialised countries and much of the European Union (EU) in its monthly report.
The IEA said that the lower 2024 forecast was linked towards poor industrial activity and a mild winter sapping gasoil consumption, particularly in Europe, where a declining share of diesel cars was already undercutting consumption.
“Combined with weak diesel deliveries in the United States at the start of the year, this was enough to tip OECD oil demand in the first quarter back into contraction,” said the Paris-based agency, noting though that the OECD slump was somewhat offset by resilient non-OECD demand led by China.
On Tuesday, OPEC had stuck by its expectation that world oil demand will rise by 2.25 million bpd in 2024. The 1.15 million bpd difference is about one per cent of world demand. The two organizations however, are closer in their projections for 2025. The IEA on Wednesday slightly raised its demand growth estimate to 1.2 million bpd. OPEC left its 1.85 million bpd forecast unchanged.
Also Read: OPEC, IEA emerge most divided on oil demand projections since 2008
OPEC’s June output policy eyed amid low prices
OPEC on Tuesday sounded an upbeat tone on the global economic outlook, while the IEA on Wednesday was more cautious. High borrowing costs, which have been in place for months in the US and Europe, dampen economic growth and oil demand.
Although the global demand economic outlook has improved since the end of last year, sticky inflation in major Western economies has pushed investors to dial back their expectations for central bank interest rate cuts, said the IEA.
The health of global oil demand will inform decision-making by OPEC – which groups OPEC and allies led by Russia (OPEC+), on whether to extend voluntary oil output cuts into the second half of the year when it meets in June.
‘’Markets look ahead to OPEC+ meeting in early June where the cartel is expected to extend the output cuts through 2H 2024, further tightening the markets during the peak demand season,” said Kaynat Chainwala – Senior Manager – Commodities Research, Kotak Securities.
Outlook
Next year, the market looks more balanced overall, the IEA predicted, with supply rising outside OPEC. Even if OPEC voluntary production cuts were to stay in place, global oil supply could jump by 1.8 million bpd in 2025, compared to this year’ 580,000 bpd increase, the agency forecast, largely on the strength of non-OPEC output growth.
The IEA and OPEC also differ over the demand outlook in the medium and long term. The IEA expects oil demand to peak by 2030. OPEC thinks oil use will keep rising for the next two decades and has not forecast a peak.
With inputs from Reuters
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Published: 15 May 2024, 05:32 PM IST
