Oil records seven weeks of gains despite IEA and OPEC’s differing demand outlooks
Oil will begin trading tomorrow with both major benchmarks recording seven consecutive weekly gains amid growing expectations of tightening supplies following output cuts from by OPEC, the world’s most influential cartel.
Brent Crude ended the week up 0.47 per cent at $86.81 per barrel, while WTI Crude rose 0.45 per cent to $83.19 per barrel – consolidating the longest rising price streak this year.
Earlier in the week, Brent Crude prices climbed as high as $88 per barrel – their highest level since January – before easing slightly.
The International Energy Agency (IEA) has predicted a sharp decline in global inventories over the second half of 2023, with unilateral output cuts from leading OPEC member Saudi Arabia and ally Russia totalling a further 1.5m barrels per day.
This would drive prices even higher, with the IEA estimating that global oil demand hit a record 103m barrels per day in June and could scale another peak this month.
The Paris-based climate agency predicts that supply cuts from OPEC and its allies (OPEC+) could erode oil inventories by 2.2m barrels per day (bpd) in the third quarter and 1.2m bpd in the fourth, “with a risk of driving prices still higher”.
“Deepening OPEC+ supply cuts have collided with improved macroeconomic sentiment and all-time high world oil demand,” the IEA said in its latest monthly oil market report.
OPEC+ limiting supplies in late 2022 to bolster the market and in June extended supply curbs into 2024.
However, the IEA’s overall demand growth forecast is down 150,000 bpd from last month and its predictions next year contrast sharply with OPEC’s.
OPEC, in its rival monthly report, maintained that oil demand will rise by 2.25m next year, compared with growth of 2.44m bpd in 2023 – with both forecasts unchanged from last month.
The IEA expects demand to expand by 2.2m bpd in 2023, fuelled by summer air travel, increased oil use in power generation and surging Chinese petrochemical activity – with the world’s second largest economy accounting for 70 per cent of the overall growth.
However, in contrast with OPEC, it expects global demand will fall sharply to 1m bpd due to challenging macroeconomic conditions and the growing adoption of electric vehicles.
“The global economic outlook remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade,” the IEA said.
OPEC is expecting a slightly more bullish production hike of 2.44m bpd.
The two groups have been engaged in a heated war of words since the pandemic, with OPEC warning the IEA against undermining investment in the oil industry due to its perceived negative forecasts and sustained calls for the West to shift from fossil fuels .
General secretary Haitham Al Ghais argued the IEA should be “very careful” about discouraging investment in the oil industry, which he said was vital for global economic growth.
Neverthless, both groups have maintained much closer forecasts for this year before their predictions diverge.