The International Energy Agency (IEA) foresees a distinct oil market deficit by the end of 2023 as global supply dynamics shift. This projection arises in the wake of Saudi Arabia and Russia’s decision to extend their oil output cuts, a resolution that’s making headlines globally.
According to a report by Reuters, last year, the OPEC+ alliance, which includes major oil-producing countries, decided on supply caps to bolster market resilience.
This strategy has shown recent results. Notably, Brent crude prices have surged, touching the $90 mark for the first time this year. A move amplified by Saudi Arabia and Russia’s commitment to maintaining reduced outputs, totaling a daily cutback of 1.3 million barrels.
While initial cutbacks from OPEC+ exceeded 2.5 million barrels daily this year, substantial production upticks from non-OPEC nations like the U.S., Brazil, and sanctioned Iran have counteracted this gap.
However, the IEA’s latest assessment carries a cautionary note. It states that the curtailed OPEC+ output from September might culminate in a pronounced supply shortfall by year-end.
Yet, the dynamics could shift again in 2024. The IEA believes that should these supply restrictions end, we might see an overabundance, resulting in plummeting stock levels. Such a scenario could stir market turbulence amidst an already sensitive economic backdrop.
Interestingly, China emerged as a crucial player in this scenario. While its economic resurgence post-pandemic has been tepid, the nation’s thirst for oil hasn’t waned, according to the IEA.
Labeling China a “potential game-changer,” the agency implies that any unforeseen shifts in China’s industrial activity and consequent oil demand could ripple worldwide, pressuring emerging markets from Asia to Latin America.
Predictions about oil demand remain varied and speculative. Both the IEA and OPEC express bullish sentiments about China’s oil consumption in 2023. Still, their global demand projections for the upcoming years differ considerably.
The IEA expects demand to rise by 2.2 million barrels daily in 2023, while OPEC’s figures are slightly more optimistic. However, their 2024 predictions starkly contrast.
Meanwhile, the U.S. Energy Information Administration offers its numbers, reflecting the complex interplay of global factors influencing oil demand.
In light of these myriad forecasts, Tamas Varga, from the oil brokerage PVM, humorously remarks, “Forecasting in today’s oil market is indeed a rollercoaster ride.”
