![]() ![]() Oil demand is affected by several factors, primarily the economic outlook – the so-called income effect, where stronger economic growth fuels oil demand, and weak growth reduces it. That difference largely stems from its more subdued outlook for non-OECD demand. It forecasts a growth of 1.76 mb/d, or ca 500,000 barrel per day less than its two counterparts. Interestingly, the United States Energy Information Administration (EIA), which traditionally was the most bullish regarding oil demand growth (with OPEC the most conservative and IEA in the middle), has taken a more cautious stance. However, OPEC acknowledges that its forecast is subject to many uncertainties, including global economic developments and ongoing geopolitical tensions. The IEA and OPEC continue to estimate that oil demand will grow by 2.2 and 2.4 mb/d respectively this year to hit a record 102 mb/d. × Facts & figures Oil prices, January 2022 – July 2023 Lackluster economic activity among the largest oil-consuming nations and resilient Russian production are credited for the downward price trend. For that, OPEC takes credit, even if it was an unintended consequence of the producer group’s recent actions. Furthermore, while spikes can still be expected and volatility – a key feature of global oil markets – will not be gone, one key difference with 2022, which tends to be overlooked in today’s oil market analysis, is the larger safety cushion built up in the system. It is also basic economics: both supply and demand react to prices, though with a time lag. One key difference with 2022 is the larger safety cushion built up in the system.Ī bearish macroeconomic outlook, especially in major consuming nations, and resilient Russian production are often cited as the main reasons behind the shift. In June this year, Goldman Sachs reduced its 2023 price forecast to $86/bl. Market expectations have shifted from fears of supply scarcity in the face of a rapidly growing demand to concerns about trailing demand and too much supply. By June 2023, oil was trading at least $50/bl less than exactly a year earlier. On the contrary, for a year now since June 2022, they have been on a downward trend, despite the ongoing war in Ukraine and the multimillion-barrel cuts OPEC+ has announced since October 2022. However, oil prices did not move according to those projections. In April 2023, the IEA concluded, “our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge.” Goldman Sachs anticipated oil prices would hit nearly $100/bl in that period. Although such gloomy forecasts did not materialize, most forecasting agencies and financial institutions continued to expect a tight market in the second half of this year. In July 2022, JP Morgan warned that Russia could cut up to 5 mb/d of production, driving global oil prices to a “stratospheric” $380/bl. ![]() Those fears persisted until at least the summer. Back then, the International Energy Agency (IEA) predicted a loss of 3 million barrels a day (mb/d) – that is about a third of Russia’s total production and almost 3 percent of the global output – and warned that this could produce “the biggest supply crisis in decades.” When Russia invaded Ukraine in February 2022, oil prices spiked to nearly $130 per barrel (/bl) in the following month. Absent economic upturn, no major deviation from current levels may happen in 2024. ![]()
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