The International Energy Agency (IEA) has indicated a notable deceleration in global oil demand growth, attributing it to economic weakness in key nations. The IEA’s monthly report, as reported by Bloomberg, highlights a significant reduction in estimates for the final quarter of 2023, slashing consumption growth by nearly 400,000 barrels per day. The report points to a distinct slowdown in oil demand, linked to the ongoing deterioration in the global macroeconomic climate.
According to the IEA, there is evidence of waning momentum in oil demand growth, stating that “the increasingly apparent loss of oil demand growth momentum reflects the deterioration in the macroeconomic climate.”
The economic downturn is affecting crude prices, which recently dropped to a five-month low below $73 a barrel in London. This decline, around 23% since late September, is tied to concerns about oversupply, China’s economic outlook, and increased oil output from various exporters.
Despite OPEC+ announcing new production cutbacks on November 30 to address an expected oversupply in the first quarter, the IEA predicts that this move will come at a cost for the coalition. It anticipates OPEC+ witnessing its market share reduced to the lowest level since its formation seven years ago. The report also underscores the impact on market dynamics, with a surge in supply from the US squeezing out traditional Middle Eastern producers like Saudi Arabia.
The IEA emphasizes the challenge for key producers in defending their market share and maintaining oil prices, especially given the continuous rise in global output and a simultaneous slowdown in demand growth. The report highlights the complexity of the situation, with the growth in American oil production exceeding 20 million barrels per day in September.
Europe, Russia, and the Middle East are key contributors to the IEA’s downgrade of fourth-quarter demand estimates. Europe, in particular, is facing softened demand due to a broad manufacturing and industrial slump, coupled with headwinds from higher interest rates.
While global oil demand is expected to substantially increase this year by 2.3 million barrels per day, reaching a record average of 101.7 million per day, the IEA anticipates a significant slowdown next year. Growth is projected to decrease by approximately 50% to 1.1 million barrels per day as the post-pandemic consumption rebound subsides, and consumers shift towards more efficient or electric vehicles. The agency suggests that the rise in consumption can likely be met by a corresponding increase in non-OPEC+ supplies. This anticipated slowdown aligns with the goals agreed upon at the COP28 climate talks, concluding with a pledge to transition away from fossil fuels.
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