Crude pricing could rise further into autumn as deeper OPEC+ production cuts coincide with consumption highs and a slight uptick to macroeconomic conditions, but demand growth could slow dramatically next year, according to the International Energy Agency (IEA).
Global oil demand is at all-time highs at present on the back of summer air travel, increasing China petrochemicals production activity and a higher proportion of oil in the power generation fuel mix, the IEA said.
Consumption is expected to have increased by 2.2 million bbl/day this year to record demand of 102.2 million bbl/day, with China accounting for 70% of that growth, according to the IEA. Demand averaged 103 million bbl/day in July and August could see further highs, the agency added.
The picture could be different for 2024 as the post-pandemic economic rebound momentum slows, exacerbating ongoing macroeconomic torpor.
The growth of the electric vehicle market and stricter energy efficiency standards are also expected to slow the rate of crude demand growth, according to the IEA, forecasting demand growth of around 1m bbl/day next year.
“With the post-pandemic recovery having largely run its course and as the energy transition gathers pace, growth will slow to 1 million bbl/day in 2024,” the IEA said in its monthly oil market report.
Despite cooler conditions in the mid-term, the heat of growth at present, combined with outages and reduced capacity on the back of extreme weather has left refiners struggling to keep up demand.
“While naphtha remains under pressure, due to competition from cheap LPG and weak petrochemical activity outside of China, high-sulfur fuel oil has tightened significantly as refiners replace lost OPEC+ crude with lighter and sweeter grades,” the IEA said.
Brent crude pricing is trading close to the highest levels of the year at around US$87/bbl, with futures values increasing US$11/bbl over the course of July.
OPEC+ supplies fell to the lowest level in two years as voluntary additional cuts by Saudi Arabia came into play, with bloc production down 2 million bbl/day from the start of the year, partially balanced by 1.6 million bbl/day in new non-OPEC supplies but limited additional gains expected the rest of 2023.
Crude inventories have fallen sharply as a result of tighter supply and demand highs, with OECD stocks currently over 100 million barrels below five-year average levels. Expectations that Russia and Saudi Arabia cuts will continue through September expected to tighten balances further.
The OPEC bloc has substantial capacity to increase supplies but, if current production targets are kept to, drawdowns on inventories could continue through the rest of the year, tightening supplies and raising prices.
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