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IEA further cuts oil demand growth forecast as OPEC faces tough call on quotas

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IEA further cuts oil demand growth forecast as OPEC faces tough call on quotas

Highlights

Growth revised down due to weaker OECD activity, mild winter

OPEC+ to meet June 1 to discuss production levels

Non-OPEC production forecast revised down for 2024

  • Author
  • Robert Perkins
  • Editor
  • Jonathan Fox
  • Commodity
  • Crude Oil Refined Products Upstream

The International Energy Agency cut its 2024 global oil demand growth forecast for the second conseutive month May 15, pointing to weaker-than-expected OCED activity two weeks before OPEC producers decide whether to maintain their output curbs this year.

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Global oil demand is set to grow by 1.1 million b/d in 2024, 140,000 b/d less than the previous forecast, the IEA said in its latest monthly oil market report. The downward revision was attributed to softer-than-expected deliveries in the first quarter of 2024, particularly in Europe and other OECD economies, where demand contracted by 70,000 b/d year on year. Demand was also affected by a mild winter that suppressed heating fuel use in OECD countries and ongoing improvements in vehicle efficiencies.

For 2025, the IEA left its global oil demand growth forecast unchanged, with demand expected to rise by 1.2 million b/d to average 104.3 million b/d, up from 103.2 million b/d this year.

The second demand growth cut in a row, the IEA's demand growth forecast for 2024 also comes a day after OPEC retained its own forecast that global oil demand will grow by 2.25 million b/d in 2024 before slowing to 1.8 million b/d in 2025.

Despite the IEA's weaker demand outlook, OPEC+ producers are faced with a tough decision when they meet in June to decide on new production quotas, the IEA said.

Assuming that OPEC+ voluntary cuts are maintained, world oil supply is projected to increase by 580,000 b/d in 2024 to a record 102.7 million b/d as non-OPEC+ output rises by 1.4 million b/d while OPEC+ production falls 840,000  b/d, the IEA said.

"The health of global oil demand will likely be a key topic for discussion when OPEC+ ministers meet in Vienna on June 1 to chart production policy for the remainder of the year," the IEA said. "Despite the recent weakness, our current balances show the call on OPEC+ crude oil at around 42 million b/d in the second half of this year -- roughly 700,000 b/d above its April output," the IEA said.

OPEC+ ministers will meet June 1 to discuss market conditions, production levels and baselines. Analysts at S&P Global Commodity Insights expect the group to extend current quotas and voluntary cuts at the meeting.

Non-OPEC production

Oil prices have been trading in the low $80s/b over the last two weeks, having slipped from this year's peak of over $90/b in early April as mixed signals over the economic outlook and strong US oil supplies offset fears over the Middle East conflict.

Platts, part of Commodity Insights, assessed the physical Dated Brent benchmark at $80.56/b on May 14, down from a peak of $93.32/b on April 12.

Commodity Insights currently expects total world oil demand growth of 1.7 million b/d and 1.1 million b/d for 2024 and 2025, respectively, and sees Dated Brent averaging $91/b from May to December this year.

On the supply side, the IEA trimmed its non-OPEC oil outlook by some 200,000 b/d for 2024 to 70.2 million b/d, mostly due to underperformance from Brazil.

As a result, the estimate for the "call on OPEC's crude" rose slightly to 27.6 million b/d in the third quarter and 26.9 million b/d in the fourth quarter of 2024. For 2025, the call on OPEC remains relatively stable, averaging around 27 million b/d throughout the year.

On stocks, the IEA said global oil inventories "surged" for a second consecutive month in March, by 34.6 million barrels, led by oil on water. Offshore stocks rose by 39.6 million barrels to a fresh post-pandemic high, due to robust exports and longer voyages to avoid the Red Sea crossing. By contrast, on-land inventories fell by 5.1 million barrels, to their lowest level since at least 2016.

According to preliminary data, the IEA said global stocks increased further in April as onshore inventories skyrocketed after oil at sea was discharged. By contrast, oil on water significantly declined due to weaker exports from Russia and the Americas, including the US, Brazil and Venezuela.