Global Oil-Demand Growth Expected to Weaken

The International Energy Agency has reported a significant slowdown in global oil-demand growth at the end of last year, with further weakening expected in the future. This marks a return to pre-pandemic trends, according to the Paris-based organization.

In its monthly report released on Thursday, the International Energy Agency projected that growth will ease to 1.2 million barrels a day in 2024, down from 2.3 million barrels a day in the previous year. This will result in a total demand of approximately 103 million barrels a day, with a previous estimate of 1.1 million barrels a day for 2024.

The slowdown in growth during the fourth quarter of last year was evident, with an increase of only 1.7 million barrels a day compared to 2.8 million barrels a day in the third quarter. The decline was primarily driven by decreased travel demand in China following a post-pandemic boom, as noted by the IEA.

China is still expected to drive nearly 60% of global demand growth this year, fueled by the expansion of the petrochemical sector, according to the agency's analysis.

However, this growth comes at the expense of gasoline and jet/kerosene demand as travel restrictions ease, fuel efficiency standards tighten, and electric vehicle sales rise.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) has maintained its forecast of global oil-demand growth for this year at 2.2 million barrels a day. Market watchers consider this level to be relatively high.

The IEA also highlighted that global economic growth is expected to slow down this year, despite anticipated interest-rate cuts from central banks. The impact of rate hikes in 2022 and 2023 is likely to weigh on business activity and consumer spending.

Even if a soft landing scenario materializes, the IEA projects 2024 to be a year of subdued global economic growth due to the delayed impact of monetary tightening and a squeeze in bank lending.

On the supply side, the report estimates that record production from the U.S., Brazil, and Guyana, along with increases from countries outside of OPEC+, will lift world oil supply by 1.5 million barrels a day, reaching an average of 103.5 million barrels a day in 2024.

Russian Crude Exports Rise, but Export Revenue Slumps

Russian crude exports increased by 500,000 barrels a day in December to reach a nine-month high of 7.8 million barrels a day. However, despite this surge in volume, export revenue took a hit, plummeting to $14.4 billion. This decline in revenue can be attributed to the increase in Russian oil price discounts and the decrease in benchmark oil prices.

Oil Prices Experience Sharp Downturn

The International Energy Agency (IEA) has released its latest report against the backdrop of a significant downturn in oil prices. Crude prices have plunged by over 20% since their peak in late September, despite the Israel-Hamas conflict and production cuts implemented by OPEC. Currently, Brent crude, the international benchmark, is trading at around $78 per barrel, briefly touching $80 last week. WTI, the U.S. oil gauge, stands at approximately $73 per barrel.

Escalating Tensions and Supply Disruption Fears

In mid-December, oil futures rebounded by about $4 per barrel following their lows. The IEA attributes this recovery to escalating tensions in the Red Sea region, caused by a series of attacks on commercial ships by Yemen's Houthi rebels. These incidents have led to concerns over potential disruptions in oil supply.

The Middle East region, responsible for one-third of the world's seaborne oil trade, remains a key area of focus for markets in 2024 due to rising geopolitical tensions.

Implications for Oil Flows and Global Supply Chains

Although the attacks have not directly impacted oil and liquefied natural gas production, there is still a high risk of disruptions. The IEA emphasizes the vulnerability of oil flows that transit via the Suez Canal, as rerouting vessels toward Southern Africa's Cape of Good Hope—the main alternative shipping lane—puts additional strain on global supply chains. This change in routing also drives up freight and insurance costs.

Market Outlook: Well Supplied, but Potential Surplus

Excluding significant disruptions to flows, the IEA suggests that the market appears to be well supplied for the coming year. This is due to higher-than-expected production from countries outside of OPEC+. It is anticipated that this production will surpass the growth in oil demand.

While the supply management policies of OPEC+ may result in a small deficit in the oil market at the beginning of the year, the agency cautions that if the OPEC+ group's voluntary cuts are reversed in the second quarter of 2024, strong growth from non-OPEC+ producers could lead to a substantial surplus.

It is important to monitor how these dynamics evolve in the coming months.