Global oil markets are creeping back to confidence as two energy watchdogs cast a positive light on the sector this week in spite of multiple geopolitical conflicts and lagging economic growth globally.
This morning, the International Energy Agency (IEA) raised its oil demand growth forecasts for 2023 to 2.4 mb/d, driven by US resilience and a sustained high drive from China.
The body also maintained its projection that global oil demand will rise to a record annual high of 102.9 mb/d in 2024.
The forecast comes on the back of a similar forecast rise for both 2023 oil demand growth and total projection for 2024 from the Organisation of the Petroleum Exporting Countries (OPEC) on Monday.
Last week, oil prices slid to their lowest levels since July. This, however, repeats a relatively consistent annual pattern for the month of October as demand from consumers in the US slows, one sector analyst told City A.M.
“US demand was particularly strong for a longer period than expected this year, driven by unseasonably warm weather across parts of the country – similar to the UK’s October heatwave — which enhanced the ‘driving’ season,” they said.
The analyst added: “China’s oil demand is at an all-time record high and has remained so throughout most of 2023, this is very rarely talked about.”
Indeed, the IEA’s report outlines that China is set to account for 1.8 mb/d of the total 2.4 mb/d increase that lifts demand to 102 mb/d in 2023 — though overall growth is expected to slow to 930 kb/d in 2024.
This sustained performance continues in spite of the fact that the economic data reflecting the country’s GDP and PMI results on a slide below expectations.
The US too exhibited particularly strong demand for an unexpectedly long period of time this year, driven by unseasonably warmer weather in parts of the country — similar to the UK’s early October heatwave.
The IEA’s report also indicates that an additional risk premium added into the market following Hamas’ attacks on Israel on October 7th has waned.
Though ICE Brent futures slumped by $8/bbl during October in part as a response to the attack, wider fears of major oil producing neighbouring countries, such as Iran which churns out up to 3mb/d, would enter the war are, as yet, unrealised.
As a result, the report details that conflict has had “no material impact” on oil supply flows and the trajectory for supply remains bullish.
Despite G7 sanctions for the country’s war against Ukraine, Russia appears to still be operating healthily above the G7 Price Cap with crude and product prices, apart from gasoline and VGO, above the $60 cap.
Russian oil exports eased by 70 kb/d in October, to 7.5 mb/d, as higher crude oil shipments failed to offset a decline in product flows. Estimated export revenues also fell by $25m to $18.34bn.
Meanwhile, both Saudi Arabia and Russia confirmed in early November they would continue with their additional voluntary output cuts until the end of the year, which will almost certainly keep the oil market in a significant deficit through year-end.