International Energy Agency (IEA) highlights that world oil output increased by 320 kb/d in October to 102 mb/d. However, there has been no material impact on oil supply flows from the war between Israel and Hamas that started in early October.
The market rally that pushed benchmark oil prices towards triple digits in September reversed sharply in October, despite continued tight crude supplies and an intensifying conflict in the Middle East. In early November, ICE Brent futures plunged to a four-month low around $80/bbl.
The abrupt sell-off came as market concerns shifted from supply risks to the global economy and oil demand. In addition, front month paper market trade has moved to 1Q24 when markets appear more or less in surplus, adding to the downward pressure on prices. While this more bearish mood may be justified, world oil demand continues to exceed expectations. In this Report, we have slightly revised up our 2023 growth forecast to 2.4 mb/d, as US deliveries proved more resilient than indicated by preliminary data and Chinese oil demand in September set another all-time high above 17 mb/d, fuelled by a booming petrochemical sector.
Those gains have come to the detriment of petrochemical producers elsewhere, most notably in Europe and advanced economies in Asia and Oceania. Indeed, the two regions saw 3Q23 oil demand slump by a combined 560 kb/d year-on-year. This year’s surge will take world oil demand to 102 mb/d before growth eases to 930 kb/d in 2024 as the last phase of the pandemic economic rebound dissipates and as advancing energy efficiency gains, expanding electric vehicle fleets and structural factors reassert themselves. Despite growth that is almost two-thirds lower than this year’s increase, global oil demand is set to rise to a record annual high of 102.9 mb/d in 2024.
World oil supply growth is also exceeding expectations. Fears that the war between Israel and Hamas would escalate into a wider regional conflict, disrupting oil supply flows, have yet to materialise. Barring large unforeseen outages, world oil supply is firmly on an upward trajectory, with October output up 320 kb/d m-o-m. Record output from the United States, Brazil and Guyana underpin this year’s 1.7 mb/d increase in global oil supplies, to a record 101.8 mb/d. In 2024, non-OPEC+ producers will continue to lead global growth, projected at 1.6 mb/d, to an unprecedented 103.4 mb/d. A temporary easing of US sanctions on Venezuela in late October is expected to have only a marginal impact on supply, as production increases from the country’s battered oil sector will take time and investment.
Meanwhile, top oil exporters Saudi Arabia and Russia confirmed in early November they would continue with their additional voluntary output cuts until the end of the year. Those cuts look set to keep the oil market in a significant deficit through year-end, with the OPEC+ alliance pumping 900 kb/d below the demand for its crude. Global observed crude oil inventories fell by a massive 140 mb over the third quarter to a fresh low, according to the available data, as refineries boosted activity ahead of seasonal maintenance. With demand growth set to slow, the market could shift into surplus at the start of 2024. For now, with demand still exceeding available supplies heading into the Northern Hemisphere winter, market balances will remain vulnerable to heightened economic and geopolitical risks – and further volatility ahead.
