Oil Market Report – December 2023 – Analysis – IEA


Oil market sentiment turned decidedly bearish in November and early December as non-OPEC+ supply strength coincided with slowing global oil demand growth. The extension of OPEC+ output cuts through 1Q24 did little to prop up oil prices. By early December, they had tumbled by about $25/bbl from September’s highs, to their lowest levels in six months. At the time of writing, Brent futures were trading around $74/bbl and WTI close to $69/bbl.  

Record-breaking supply from the United States, Brazil and Guyana, and sharply higher Iranian oil production, along with easing demand, prompted some OPEC+ members to announce more extensive 100 2 1Q24 cuts to fend off a potential inventory build. Improved drilling efficiencies and 95 0 well productivity in the shale patch saw US oil supply exceed 20 mb/d in September, defying industry warnings of an imminent slowdown in growth due to cost inflation and oil field service capacity constraints. As a result, upward revisions to US 2H23 supply are set to total close to 600 kb/d since our June Report. The United States is now on track to deliver a supply increase of 1.4 mb/d in 2023, accounting for two-thirds of the 2.2 mb/d non-OPEC+ expansion. At the same time, OPEC+ will post a 400 kb/d decline, cutting its market share to 51% in 2023 – the lowest since the bloc’s creation in 2016. Hefty supply cuts, largely shouldered by Saudi Arabia, have been tempered by Iranian production at five-year highs. While non-OPEC+ supply growth is set to lose momentum in 2024, forecast gains of 1.2 mb/d may yet exceed the increase in global oil demand. 

Evidence of a slowdown in oil demand is mounting, with the pace of expansion set to ease from 2.8 mb/d y-o-y in 3Q23 to 1.9 mb/d in 4Q23. A deterioration in the macroeconomic outlook led to a downward revision in our global oil consumption growth forecast of nearly 400 kb/d in the final three months of the year. Europe, Russia and the Middle East account for most of the adjustment. The impact of higher interest rates is feeding through to the real economy while petrochemical activity shifts increasingly to China, undermining growth elsewhere. Europe is particularly soft amid the continent’s broad manufacturing and industrial slump. In addition, tighter efficiency standards and an expanding electric vehicle fleet continue to curb oil use. As a result, world oil demand growth in 2023 has been adjusted lower by 90 kb/d from last month’s Report to 2.3 mb/d. China accounts for 78% of this year’s increase. Oil consumption growth is expected to ease significantly in 2024, to 1.1 mb/d, with demand baselines normalising as Covid-related distortions fade.  

The shift in global oil supply from key producers in the Middle East to the United States and other Atlantic Basin countries, and the dominant impact of China and its booming petrochemical sector on oil demand, are profoundly impacting global oil trade. East of Suez markets have already absorbed the majority of Russian flows following the invasion of Ukraine as well as rising Iranian exports, but now must adjust to increasing volumes of Atlantic Basin crude and NGLs. The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices. 



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