Key Takeaways
The International Energy Agency (IEA) has increased its forecast for world oil demand this year for the 4th time since November, but still predicts lower demand than the Energy Information Administration and OPEC.
Its new prediction of 1.3 million barrels per day of additional demand falls far short of last year’s 2.3 million barrels per day increase, but would still mean the world is consuming more fossil fuels than ever before, consistent with historical trends.
China is the driver of demand, as it has passed the United States in refining capacity, and is also the world’s largest consumer of energy and its largest emitter of carbon dioxide.
The International Energy Agency (IEA) raised its 2024 oil demand growth for a fourth time since November, as many see it forecasting what it wants to have happen rather than what the market indicates is likely. Even with the higher numbers of 110,000 additional barrels per day indicating a 1.3 million barrel per day increase in oil demand in 2024, IEA’s forecast is lower than that of the Organization of the Petroleum-Exporting Countries (OPEC). Both OPEC and IEA have differed regarding the long-term oil demand outlook and the need for investment in new oil supply. On the supply side, the IEA is forecasting a slight supply deficit this year after OPEC+ members extended cuts, from a surplus in its previous forecast, meaning inventories will need to come down. After IEA released its report, Brent oil rose as much as 80 cents a barrel towards $85, touching its highest level since November.
Last year, oil demand rose by 2.3 million barrels per day. According to IEA, the slowdown in oil demand growth in 2024, which it says is apparent in recent data, means that oil consumption reverts towards its historical trend after several years of volatility from the post-pandemic rebound. The IEA had initially forecast 2024 demand growth of 860,000 bpd in June 2023—34 percent lower than its current demand forecast increase of 1.3 million barrels per day. OPEC kept its demand growth forecast unchanged at 2.25 million barrels per day—similar to last year’s increase. OPEC and IEA remain nearly 1 million barrels per day apart, representing almost 1 percent of daily world demand. In comparison, the Energy Information Administration (EIA) expects world oil demand growth to be 1.43 million barrels per day—closer to IEA than OPEC. It also sees a tighter supply balance due to the OPEC+ extended cuts, which would lift prices.
One reason oil demand is being forecast higher by IEA compared to June of last year is the issue affecting Red Sea shipping channels. Disruptions to shipping in the Red Sea region by Houthi attacks have increased fuel demand by forcing more trade on to the longer route around the Cape of Good Hope. That has pushed up the number of barrels at sea to nearly 1.9 billion as of the end of February.
The IEA, however, still thinks the cloudy economic outlook will weigh on demand, even as the challenges to shipping provide a short-term boost to demand. According to the IEA, oil demand growth will continue to be heavily skewed towards non-OECD countries, even as China’s dominance gradually fades. It expects China’s demand growth to slow to 620,000 barrels per day from 1.7 million barrels per day in 2023—a drop of 64 percent—as it opened the country from COVID lockdowns. Chinese refiners have shown in recent years that they are willing to step up purchases when prices are relatively low and hold back when oil climbs above $80 per barrel, which affects markets now that China has the world’s largest refinery capacity. Even if domestic and fuel export demand is not very high, China is using the cheaper oil it has imported to raise stockpiles.
On the supply side, the IEA expects growth from non-OPEC+ countries would continue to significantly eclipse oil demand expansion in 2024, although extended cuts by some OPEC+ members had tightened the balance. Some OPEC+ members earlier this month extended voluntary cuts made in the first quarter until the end of June. The IEA said it was treating those cuts as being in place for the whole year, unwinding them only once OPEC+ confirms the move. According to IEA, the oil balance for the year shifts from a surplus to a slight deficit, but oil tanks may get some relief as the massive volumes of oil on water reach their final destination.
But, right now, markets are saying that demand for oil is growing at a healthy pace, but not supply. If this continues, there could be a shortage down the road. The White House will probably blame OPEC and Big Oil for it, as it has done before, should it occur.
Biden’s War on U.S. Oil Production
Since President Biden’s first day in office, he has set an extreme anti-fossil fuel policy. He has blocked permits, canceled the Keystone XL pipeline, suspended leases in Arctic National Wildlife Refuge, restricted oil and gas leasing to the lowest level since WWII and generally waged war on traditional energy resources. IER has listed 200 ways that President Biden and his Democratic cohorts have made it harder for U.S. companies to produce oil and gas in this country.
Projected Oil and Gasoline Prices
As a result of OPEC+ extending its oil production cuts, EIA has reduced its forecast for global oil production growth in 2024. The lower growth results in significant global oil inventory declines in the forecast for the second quarter of 2024. Because of falling inventories, EIA expects the Brent oil spot price will average $88 per barrel in the second quarter of 2024 and average $87 per barrel in 2024.
With those forecasted oil prices, EIA is projecting that the U.S. average retail gasoline price will average about $3.50 per gallon this year, about the same average price as last year, and over a dollar more than when President Biden took the oath of office. Despite averaging about the same price as last year, EIA expects that nominal gasoline prices from May through July will exceed prices for those same months in 2023.
Conclusion
China holds the key to oil demand increases. In 2023, China was recovering from COVID lockdowns and pushed oil demand up. IEA expects growth in oil demand from China to slow this year, lowing the increase in global oil demand growth to 1.3 million barrels per day in 2024 from 2.3 million barrels per day in 2023. IEA has upped its demand forecast growth 4 times since November, but still sees demand growth slowing compared to last year. IEA differs from OPEC on oil demand growth forecasts with OPEC seeing almost a 1 million barrel per day higher level in 2024. IEA sees oil supply tightening and inventories falling, which will result in higher oil prices. According to the EIA, oil prices this year will average $87 a barrel and gasoline prices will average about $3.50 a gallon.
