IEA confirms oil demand growth forecasts; sees volatility threat as market tightens

The International Energy Agency has confirmed its global oil demand growth estimates for 2023 and 2024 but raised fresh concerns over a looming supply deficit this year, which has already triggered a fall in global oil stocks.

In its latest monthly oil report, the IEA said world oil demand remains on track to grow by 2.2 million b/d in 2023 led by resurgent Chinese consumption, jet fuel and petrochemical feedstocks. Despite revisions to baseline data, oil demand growth in 2024 is also still estimated to grow a much slower 1 million b/d, the IEA said, as the post-pandemic recovery ebbs and efficiency gains and electric cars help suppress oil consumption.

But with the recent extension of output cuts by Saudi Arabia and Russia of a combined 1.3 million b/d through year-end, the IEA said global oil markets face steep deficits through the end of the year.

"From September onward, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter. Unwinding cuts at the start of 2024 would shift the balance to a surplus. However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment," the IEA said.

An expected rise in global oil demand of 1.5 million b/d in the second half of 2023 over H1 will eclipse supply by 1.24 million b/d, it said.

The IEA also revised downward its baseline oil demand estimates to reflect recent accounting changes in US demand deliveries data from the US Energy Information Administration. As a result, the IEA cut its oil demand estimates for 2022 and year-to-date for 2023 by an average of 270,000 b/d. Although not affecting its demand growth estimates, the IEA now sees global oil demand in 2023 and 2024 averaging 101.81 million b/d and 102.8 million b/d respectively, some 350,000 b/d lower than previously.

Stock slump

With demand already outstripping supply, global oil stocks are continuing to fall below the five-year average, the IEA said.

Global oil inventories fell by 76.3 million barrels, or 2.46 million b/d, to a 13-month low in August, the IEA said citing preliminary estimates. The largest decline came from oil on water, which lost more than 50 million barrels versus end-July levels.

Crude oil, NGL and feedstock inventories declined by 28.7 million barrels in the US (down 28.2 million barrels) and Japan (down 5.5 million barrels) but were partially offset by a 5 million-barrel build in Europe, the IEA said. By contrast, oil product stocks built by a significant 22.5 million barrels, the IEA said, citing early data from the US, Europe and Japan.

In July, OECD industry stocks rose by 26.7 million b to 2.81 billion barrels but remained 102.6 million barrels below their five-year average, the IEA said

Demand, supply

China's robust demand growth as travel recovers from pandemic lows continues to underpin global oil tightness this year which has seen oil prices rise over $90/b in recent weeks.

China's oil demand hit another all-time monthly record in July for the third time this year, the IEA noted, reaching 16.7 million b/d helped by the expansion of the country's petrochemical activity.

Despite economic headwinds, China is on track for 75% of the increase in world oil demand this year, or 1.6 million b/d of the total. Next year, China's demand growth will slow sharply, however, to 640,000 b/ due to a "more challenging macroeconomic environment", the IEA said.

The IEA noted, however, that output curbs by OPEC+ members of more than 2.5 million b/d since the start of the year have so far been offset by higher supplies from producers outside the alliance. Record US and Brazilian supply underpin a 1.9 million b/d increase in non-OPEC+ production from January to August, while Iran, still under sanctions, boosted output by around 600,00 b/d, the IEA said.

As a result, the IEA raised its 2023 non-OPEC oil supply estimate 200,000 b/d led to 67.6 million b/d and forecast a similar lift to implied global world oil supply this year.