(Montel) IEA sees oil supply deficit in H2 before demand slows

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The global oil market will see a “substantial supply deficit” through the fourth quarter of this year before demand slows in 2024, the International Energy Agency said on Wednesday.

The Paris-based agency said a rise in global oil demand of 1.5m bbl/day in the second half of the year over first-half levels will eclipse supply by 1.24m bbl/day. The Opec cartel on Tuesday also warned of a supply deficit in Q4.

This looming supply deficit – thanks to a combination of production curbs by key members of the Opec alliance coupled with rising demand from China and India – has pushed benchmark crude oil prices to fresh 10-month highs.

The IEA kept its global oil demand outlook unchanged for 2023 and downgraded that of 2024. Demand would climb by 2.2m bbl/day to 101.8m bbl/day this year, before slowing to an increase of almost 1m bbl/day to 102.8m bbl/day next year – against a previous forecast of 103.16m bbl/day.

“Despite its difficult economic situation, China looks on track to account for 75% of the increase in world oil demand this year,” the IEA said. The more modest rise in demand next year reflected “below-trend GDP growth and a structural decline in road transport fuel use in major markets”.

It also cited energy efficiency gains, EV penetration and working from home for “further suppressing consumption”.

Production cut

The IEA pointed to an extension of output and export cuts by Saudi Arabia and Russia, key producers of the 23-nation Opec alliance, through year-end. These cuts “will lock in a substantial market deficit through the fourth quarter of 2023”, the agency said. Opec pegged the deficit of more than 3m bbl/day at year-end.

However, the IEA pointed out that the output curbs by Opec members of more than 2.5m bbl/day since the start of 2023 have so far been offset by higher supplies from producers outside the alliance.

Record US and Brazilian supply underpinned a 1.9m bbl/day increase in non-Opec production from January to August, while Iran, still under sanctions, boosted output by around 0.6m bbl/day, the IEA said.

In total, the agency expects world oil supply this year to increase by 1.5m bbl/day, fuelled by the US, Iran and Brazil.

Although the loss of Opec production, led by Saudi Arabia, “will drive a significant supply shortfall” through the fourth quarter, the IEA said that an unwinding of cuts at the start of 2024 “would shift the balance to a surplus”.

“However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment.”

In oil trading, the benchmark Brent crude and WTI contracts reached their highest levels since November 2022. The front-month contract for Brent crude North Sea oil was last seen up USD 0.56 at USD 92.62/bbl on Ice Futures, while the US WTI equivalent traded USD 0.58 higher on the day at USD 89.42/bbl.