Global oil demand growth will slow in 2024 due to the cooling of overall economic activity, the Dubai National Bank of the United Arab Emirates said recently. In 2024, the supply of oil outside OPEC + will increase by more than 1 million barrels a day. Some OPEC + members have extended the voluntary production reduction agreement to the first quarter of 2024. Brent crude is expected to average $82.5 a barrel in 2024, with downside risks stemming from lower-than-expected demand and the possible collapse of the OPEC + production reduction alliance.
The International Energy Agency predicts a sharp slowdown in global oil consumption growth in 2024
The International Monetary Fund (IMF) forecasts global economic growth of 2.9 per cent in 2024, down from 3 per cent in 2023 and 3.5 per cent in 2022. The fed expects the u.s. economy to grow by 1.4% in 2024, compared with 2.6% in 2023. The poor outlook for global economic growth also puts pressure on the outlook for oil demand.
The International Energy Agency (IEA) expects global oil consumption growth to slow sharply in 2024, from 2.3 million b / d in 2023 to 1.06 million b / d in 2024. Unlike in 2023, there will be no significant increase in oil demand in 2024, as most economies will be affected by tighter monetary policy and rising overall price levels.
The IEA's outlook for global oil demand growth contrasts sharply with OPEC. OPEC estimates that global oil demand will increase by 2.3 million barrels a day in 2024, most of it from non-OECD countries, but the main difference between the two agencies is the forecast of demand from OECD countries.
OPEC expects oil demand in OECD countries to accelerate by nearly 260000 barrels a day in 2024, while the International Energy Agency estimates that consumption will fall by nearly the same level. The IEA said a slowdown in activity in developed market economies would dampen oil consumption by limiting investment and industrial demand.
OPEC + some member countries further voluntary production cuts in the first quarter of 2024
Although OPEC has been predicting strong growth in global oil demand in 2024, several OPEC + members have decided to further voluntarily cut production in the first quarter of 2024, totaling about 2.2 million barrels a day. this includes the additional 1 million b / d production limit maintained by Saudi Arabia since July 2023, as well as Russia's production and export restrictions of 500000 b / d. The new production increases and reductions are jointly borne by Iraq (223000 b / d), the United Arab Emirates (163000 b / d), Kuwait (135000 b / d) and Kazakhstan (82000 b / d). The production cuts of other OPEC + members are relatively small.
The new production increases and reductions do not form part of the broader OPEC + production reduction agreement, which will depend on individual oil producers sacrificing market share. In previous production reduction agreements, member countries that exceeded the target level had to make up for it by further production cuts. Member States that voluntarily reduce production do not have such an implementation mechanism. OPEC + did not reach a broader agreement to cut production, indicating differences among member states.
OPEC + production cuts helped bring the oil market closer to balance during the outbreak, but the idea of reducing oil price volatility by cutting production seems to have lost credibility as rising demand led to a rebound in prices. OPEC's assessment of strong growth in oil demand also appears to be bad for plans to cut production unless it is only to support oil prices.
Both the International Energy Agency and OPEC estimate that US oil supplies will increase by about 600000 barrels a day in 2024.
After the first quarter of 2024, the market will be slightly oversupplied.
If the voluntary production reduction agreement is fully implemented in the first quarter of 2024, there will be a supply shortfall of about 500000 barrels a day in the oil market. But after the first quarter, a large amount of OPEC + crude oil will return to the market, including Saudi Arabia's 1 million barrels a day, which could overwhelm market supply and lead to an increase in inventories.
As supplies from non-OPEC + oil-producing countries will increase further in 2024, crude oil production from OPEC core producers Saudi Arabia, the United Arab Emirates and Iraq will only be able to return to the market temporarily, which could further exacerbate OPEC member countries' dissatisfaction with the production reduction agreement.
The effectiveness of the 2024 production reduction will depend on the achievement of the production reduction target. At present, OPEC members that voluntarily cut production in the first quarter are expected to fully comply with the production reduction target, but will slowly increase production for the rest of 2024.
Edward Bell, head of market economy at Dubai National Bank of the United Arab Emirates, said the oil market could be close to balance as the voluntary production reduction agreement is partially complied with in the first quarter of 2024. For the rest of 2024, as supplies from OPEC + and non-OPEC + oil producers enter the market, demand growth is expected to be lower than in 2023 and the market will be slightly oversupplied.
The average price of Brent crude oil in 2024 is expected to be $82.50 per barrel and $77.50 per barrel for WTI.
"A market where supply exceeds demand, even if only moderately, will adversely affect oil prices in 2024," Bell said. Brent crude is expected to average $82.5 a barrel in 2024, from $85 in the first quarter to $80 in the second and third quarters, before returning to $85 in the final months of 2024. The average price of WTI in 2024 is expected to be $77.50 a barrel. Slowing demand growth and oversupply in the market may mean a sustained futures premium structure. "
The risk of oil price outlook in 2024 mainly comes from the way demand is realized. If it is as strong as OPEC + estimates, then the market will need higher oil prices to regulate. In this case, OPEC + may have room to restore crude oil supply, so the price upside risk is relatively limited.
But the downside is that demand growth may not even meet the IEA's modest targets, leading to a broader market oversupply. If OPEC + sees no benefit in limiting production, the risk of a disorderly end of the alliance is a huge price downside risk.
Oil investors worry about oversupply in 2024 & nbsp
A recent Reuters survey of 30 economists and analysts shows that oil investors have a number of concerns about market movements, including oversupply, slowing economic growth and tensions in the Middle East, all of which could trigger oil price volatility. & nbsp
In 2023, the average price of North Sea Brent crude oil was 80 US dollars per barrel, and the market demand reached a record 100 million barrels per day. Economists and analysts say the average price of Brent crude in the North Sea is expected to be $84.43 a barrel in 2024.
Norwegian energy consulting firm Rystad, shipping intelligence company Kpler, energy consulting firm Wood Mackenzie and US financial giant JPMorgan Chase all said that oil supply is expected to increase by 1.2 million to 1.9 million barrels per day in 2024, driven by production growth in non-OPEC oil producers.
Analysts at Macquarie Energy, a global financial group, say quarterly oversupply is expected in 2024.
Wood Mackenzie analysts said that in order to assess compliance with OPEC + voluntary production cuts, January to March 2024 will be a critical period.
Analysts say that despite the sanctions, Iranian oil will continue to flow into the global market, driving down oil prices. Iran currently produces 3.4 million barrels a day, but aims to increase it to 3.6 million barrels a day by March 2024. Non-OPEC producers, led by Guyana and the United States, are expected to increase production in 2024, thereby increasing the supply of light, sweet crude. In addition, due to OPEC + production cuts, the supply of high-sulfur crude oil will continue to tighten. Source: Sinopec Daily