World oil demand will rise faster than expected next year, the International Energy Agency (IEA) said on Thursday, a sign that the outlook for near-term oil use remains robust despite this week’s COP28 agreement to transition away from fossil fuels.
Despite the upgrade, there is still a sizeable gap between the IEA, which represents industrialised countries, and producer group Opec over 2024 demand prospects.
World consumption will rise by 1.1 million barrels per day(bpd) in 2024, the Paris-based IEA said in a monthly report, up 130,000 bpd from its previous forecast, citing an improvement in the outlook for the United States and lower oil prices.
The 2024 upward revision reflects “a somewhat improved GDP outlook compared with last month’s report,” the IEA said. “This applies especially to the US where a soft landing is coming into view.”
“Falling oil prices act as an additional boost to oil consumption,” it said.
The IEA, which advocates a speedy transition from fossil fuels, also cut its global demand growth forecast for the current quarter by almost 400,000 bpd to 1.93 million bpd due to a worsening economic outlook.
“Europe, Russia and the Middle East account for most of the adjustment,” the IEA said. “The impact of higher interest rates is feeding through to the real economy while petrochemical activity shifts increasingly to China, undermining growth elsewhere.”
Oil has weakened to a six-month low near $72 a barrel this week, even after Opec+, which includes Opec oil-exporting nations and allies such as Russia, on November 30 announced a new round of production cuts for the first quarter of 2024.
Crude was up more than 3 per cent on Thursday after the IEA report was released to trade near $77.
In the report, the IEA also trimmed its forecast for oil demand growth in 2023 by 90,000 bpd to 2.3 million bpd. China accounts for 80 per cent of this year’s global rise.
A halving in the rate of demand expansion next year is due to below-trend economic growth in major economies, efficiency improvements and a booming electric vehicle fleet, the IEA said.
The extension of Opec+ supply cuts into the first quarter of next year had done little to boost prices, the IEA said, adding oil market sentiment turned decidedly bearish in November and early December.
In 2024, supply from producers outside Opec+ is set to rise by 1.2 million bpd, a slowdown from this year’s 2.2 million bpd growth led by the United States, the IEA forecast. This plus the slowdown in demand could be a headwind for Opec+.
“While non-Opec+ supply growth is set to lose momentum in 2024, forecast gains of 1.2 million bpd may yet exceed the increase in global oil demand,” the IEA said.
“The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices.”
The IEA forecast global demand for Opec crude plus withdrawals from stocks – known as the call on Opec – will average 28.2 million bpd on average in 2024 and dip to 27.7 million bpd in the first half of 2024.
The IEA estimated Opec pumped 28.1 million bpd in November, or 400,000 bpd more than the demand it expects for Opec crude in the first half of next year.
Opec in a monthly report on Wednesday kept its forecast for world oil demand growth in 2023 at 2.46 million bpd. In 2024, Opec sees demand growth of 2.25 million bpd, also unchanged from last month.
The difference between the IEA and Opec 2024 demand growth forecasts has narrowed slightly but stands at 1.15 million bpd – equivalent to roughly 1 per cent of daily world oil use and the daily production of an Opec member such as Libya.
Oil demand forecasters often have to make sizeable revisions given changes in the economic outlook and geopolitical uncertainties, which this year included China’s lifting of coronavirus lockdowns and rising interest rates.