The International Energy Agency (IEA) in its monthly oil market report on Friday, August 11, 2023 has projected oil prices to further go up for the rest of the year 2023.

The International Energy Agency explained that OPEC+ supply cuts could erode inventories in the rest of the lyear, potentially driving prices even higher, before economic headwinds limit global demand growth in 2024.

The IEA also added that tighter supply driven by OPEC+ oil output cuts and rising global demand has underpinned a rally in oil prices, with Brent crude hitting highs of over US$88 a barrel on Thursday, the highest since January.

According to the IEA, if OPEC+ current targets are maintained, oil inventories could draw by 2.2 million barrels per day (bpd) in the third quarter and 1.2 million 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 Paris-based energy watchdog said in its monthly oil market report.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, began limiting supplies in late 2022 to bolster the market and in June extended supply curbs into 2024.

The IEA disclosed that in July, global oil supply plunged by 910,000 bpd in part due to a sharp reduction in Saudi output. But Russian oil exports held steady at around 7.3 million bpd in July.

Next year, demand growth is forecast to slow sharply to 1 million bpd, the IEA said, citing lacklustre macroeconomic conditions, a post-pandemic recovery running out of steam and the burgeoning use of electric vehicles.

“With the post-pandemic rebound largely completed and as multiple headwinds challenge the OECD’s outlook, oil consumption gains slow markedly,” the IEA said, referring to Organisation for Economic Co-operation and Development nations.

Demand Growth Forecast

The IEA’s demand growth forecast is down by 150,000 bpd from last month and contrasts with that of OPEC, which on Thursday maintained its forecast that oil demand will rise by a much stronger 2.25 million bpd in 2024.

“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.

The IEA indicated that world oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity.

Global oil demand is set to expand by 2.2 mb/d to 102.2 mb/d in 2023, with China accounting for more than 70% of growth. With the post-pandemic rebound running out of steam, and as lacklustre economic conditions, tighter efficiency standards and new electric vehicles weigh on use, growth is forecast to slow to 1 mb/d in 2024.

Meanwhile, global oil supply plunged by 910 kb/d to 100.9 mb/d in July. A sharp reduction in Saudi production in July saw output from the OPEC+ bloc fall 1.2 mb/d to 50.7 mb/d, while non-OPEC+ volumes rose 310 kb/d to 50.2 mb/d.

Global oil output is also projected to expand by 1.5 mb/d to a record 101.5 mb/d in 2023, with the US driving non-OPEC+ gains of 1.9 mb/d. Next year, non-OPEC+ supply is also set to dominate world supply growth, up 1.3 mb/d while OPEC+ could add just 160 kb/d.

The IEA noted that refinery throughputs are set to reach a summer peak of 83.9 mb/d in August, up 2.4 mb/d since May and 2.6 mb/d higher than a year ago. The increase in refined product output has failed to ease product market tightness, pushing gasoline and middle distillate cracks to near record-highs. High sulphur fuel oil cracks provided further support to margins, which pushed above 2022 levels in July.