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| Data and Image: credit - IEA |
The Paris-based
International Energy Agency, IEA, put a damper yet again on the perceived demand for oil in 2024 and 2025, in stark contrast to that of the OPEC+, the Organization
of Petroleum Exporting Countries plus Russia.
According to
IEA’s latest report on the subject, released in June, 2024, the growth will be a
fairly modest 960 kbpd - 960 thousand barrels per day in 2024; it is a drop of
100 kbpd from IEA’s own previous estimate. The IEA cites a weaker demand in
China for the drop in demand in this year.
China’s PMI, the key indicator that reflects the manufacturing activity, for instance, has been in decline for a few successive months, even below the psychologically sensitive 50%, the threshold; it went above 50% in March, only to come down again in April - and then, to continue the decline into May.
It is no
secret that the oil producers pin their hopes on China and India in order to
keep the spark of robust demand alive. Unfortunately, the global inflation,
coupled with political upheavals, appears to be getting in the way, when it
comes to shoring up manufacturing activities in China.
In addition,
the EV – electric vehicles -sector in China is expanding by leaps and bounds
that in turn could bring down the demand for oil, at least in this sector.
As for the
demand of oil in 2025, the IEA says that the demand will grow by 1 million
barrels per day on a slower trajectory, indicating a figure lower than that of
the previous years.
The IEA attributes
sluggish global economic growth, exacerbated by inflation, the growth of electric
vehicles and of course, the efficiency improvements of motor vehicles to the
scenario in question for the next year.
By contrast,
the OPEC+ has been very optimistic about the outlook while forecasting a demand-growth
by 2.25 million barrels per day.
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| Data: Credit - OPEC |
The clear
divergence of the two separate paths have been attributed to their corresponding
foci of the relevant data: the IEA, for instance, focuses on the global
economic outlook and energy transition in forecasting the future trend; the
OPEC+, on the other hand, focuses on the interest of its members and near-term
dynamics in the oil sector – and for obvious reasons.
Judging by
the recent fluctuations of the oil price, the markets – and investors for that
matter – appear to be leaning more towards the forecast of the IEA than that of
the OPEC+. The price of oil slightly rose last week, only to come down before
the weekend, highlighting the lingering volatility.
As of 11:00 GMT
on Monday, June 17, the prices of WTI, Brent were at $78.41 and $82.60
respectively. The price of LNG, liquified natural gas, also showed a sharp
decline, recording just $2.81.
Meanwhile,
neither the IEA nor the OPEC+ took into account the forthcoming presidential election
in the US, the world’s top oil consumer – and the country that holds the title
of being the top global producer of oil.
Since the
inflation has become a major issue during the campaign, both sides of the
political divide know the root cause that was behind the problem – high energy
prices.
In this
context, the US may be compelled to release more oil from its SPR, Strategic
Petroleum Reserve, in order to mitigate the growing public anger over the
inflation.
Since the
Biden Administration already released more that 180 million barrels of oil from
the SPR to bring down the oil prices since 2022, the next move in tapping into
the reserves will be easier said than done; although the administration wanted
to fill the reserves up that is meant to be for an emergency, not a tool for
stabilising prices, the high oil prices have not made the move feasible.
With just
less than six months to go before the presidential election, the Biden Administration
may go for the nuclear option in order to dampen the headlines that are not in favour
of measures taken in tackling the inflation – releasing more oil from the SPR, despite
that being at a record low level.
If that
happens, the price of oil will be under heavy pressure as never before and
could even collapse precipitously, leaving beleaguered oil producers in the doldrums
– and in a state of confusion, by extension.
In this
context, President Biden’s opponent’s ‘drill bay drill’ strategy will only make
the fall in prices irreversible for a long time, if the architect of the
concept sets his foot in the White House again in November, this year.
In short,
the stakes have never been higher for the oil producers, both from the OPEC+
and beyond.
