The International Energy Agency (IEA) stated in its monthly report that previous oil price hikes had already disrupted demand. The subsequent drop in oil prices confirms this, leading the agency to further reduce its global crude oil demand growth forecast for the upcoming year.
On October 12th, the IEA's report revealed that U.S. gasoline consumption has plummeted to a 20-year low, indicating that evidence of demand disruption is emerging. With improvements in efficiency and economic challenges, production growth is expected to slow down by 2024.
The IEA has revised its 2024 demand growth forecast down from the previous 1 million barrels per day to 880,000 barrels per day. Meanwhile, it has increased its 2023 demand prediction from the earlier 2.2 million barrels per day to 2.3 million barrels per day.
The agency noted that after Saudi Arabia and Russia collaborated to cut production, the surge in oil prices reignited inflation concerns. This could potentially lead to tighter monetary policies or maintaining high interest rates for an extended period. Such measures might "push the fragile global economy towards stagnation."
Emerging markets are hit harder by this demand disruption, as exchange rate effects and the removal of subsidies amplify the rise in fuel prices.
However, the IEA highlighted that oil demand in China, India, and Brazil is still rapidly growing, prompting it to raise this year's demand forecast. But considering the slowing momentum of the global economic rebound post-pandemic, the agency has reduced next year's demand growth.
In August, global oil inventories plummeted by 63.9 million barrels, with crude oil stocks significantly dropping by 102.3 million barrels, reaching their lowest levels since 2017.
The IEA emphasized that, against the backdrop of Saudi-led production cuts, market inventories might still see significant deficits for the remainder of the year. If Saudi Arabia and Russia cancel additional production cuts in January, the supply-demand balance could shift to a surplus, helping to some extent replenish depleted stocks.
Moreover, the IEA pointed out that the escalating tensions in the Middle East are intensifying risks in the global oil market, as the region accounts for a third of global seaborne oil trade.
While physical supplies haven't been directly impacted, the unfolding crisis will keep market concerns about risks elevated.
Earlier this week, influenced by geopolitical conflicts, Brent crude oil prices surged again, exceeding $90.
The IEA anticipates the oil market will remain highly balanced and stated it will continue to closely monitor the oil market. The international community will remain highly attentive to the risks faced by oil trade in the region.
