Feature Stories | May 22 2024
Analysts assess the near term outlook for oil and gas prices amidst a variety of risks and uncertainties.
-Global demand/supply
-OPEC’s balancing act
-Emerging market demand
-Geopolitical Risks
-Australian gas prices
By Greg Peel
The International Energy Agency (IEA) has revised down its global oil demand growth forecast by -140,000 barrels per day to 1.1mb/d in 2024, on the back of lower OECD demand in the March quarter. However, global oil demand growth in 2025 has been revised slightly higher to 1.2mb/d.
The IEA projects global supply to be at a record of 102.7mb/d in 2024, led by non-OPEC-Plus countries, with supply growth by non-OPEC-Plus to be at 1.4mb/d in 2024, while OPEC-Plus voluntary cuts would lower supply growth by -0.8mb/d.
The US Energy Information Agency (EIA), in its latest Short-Term Energy Outlook, projected a smaller deficit of less than -0.1mb/d in 2024 and a surplus of nearly 0.4mb/d in 2025. The agency now expects OPEC-Plus production cuts could potentially be rolled forward for the whole of the second half of this year. The agency left global oil demand growth unchanged at 0.9mb/d in 2024 and at 1.4mb/d in 2025.
Ahead of the June 1st OPEC meeting, the IEA and EIA converged to Citi’s long-standing view, expressed last December, on extending voluntary cuts till the end of 2024. All in all, once incorporating EIA’s OPEC crude production numbers, Citi has a deficit of -0.5mb/d in 2024, loosening to a surplus of 0.3mb/d in 2025.
While May saw another month of downgrades to global 2024 demand growth estimates by the IEA and EIA, the IEA’s change was the result of raising the 2023 demand baseline by 130kb/d without a corresponding adjustment to 2024, notes Morgan Stanley, thereby compressing growth in 2024. The IEA cited weaker demand data from Europe in the March quarter.
The Balancing Act
OPEC faces a difficult decision, suggest ANZ Bank analysts, as it meets to review its supply policy next month. ANZ believes market expectations will surpass fundamentals, as OPEC looks to provide some stability for the oil market.
There are three possible outcomes: extend the current voluntary production cuts of -2.2mb/d; unwind them; or completely remove them. ANZ’s current model is based on a gradual unwinding of the cuts in the second half of this year.
This is the basis for ANZ’s Brent oil forecast of US$90/bbl in the second half. Should OPEC choose to remove the cuts, prices could fall as low as US$75/bbl. However, an extension could produce “eye-watering deficits” and push prices to US$100/bbl. ANZ’s estimates don’t take into consideration any geopolitical risk premium.
As such, ANZ Bank sees an extension is the most likely outcome. A possible middle ground could be the adjustment to members’ baseline production levels if the group decides an official unwinding of production cuts is too risky for prices.
Longview Economics notes oil prices have fallen -11% from their April 12 high. In the short term, Longview’s models point to further downside in the short term.
On a one to two-year view, Longview suggests the oil price outlook is bullish, with Brent likely to rally to US$90-100/bbl by year-end. That view reflects the analysts’ outlook for global oil inventories, which they expect to trend down over the next 18-24 months as a result of modest supply deficits this year and next.
In particular, OPEC-Plus production is likely to stay relatively low this year, Longview believes, while US shale oil supply growth should continue to decelerate, only growing by 0.6mbpd this year and next year versus 1.5mbpd last year.
Global oil demand growth should remain robust, albeit at a lower level versus 2022 and 2023.
Emerging Demand
Trend growth in developed market oil demand is close to, if not at, zero, Longview Economics notes. Total DM oil consumption hasn’t grown for about 40 years, given a combination of relatively low population growth compared to emerging market economies, and the multi-decade downtrend in oil consumption per head, as Western nations have become more efficient with their energy use and, in recent years, have switched towards EVs.
Emerging market oil demand is therefore the key marginal driver of global demand. Without EM, global oil demand wouldn’t have grown in the past 40 years. With EM, it has grown cumulatively by 70% since 1985. Chinese demand has been a key component of that growth, especially in recent years. In the next 18 months though, Chinese demand is likely to slow, Longview believes.
But how much will EM demand, outside of China, drive global oil consumption growth this year and next?
EM demand growth ex-China is likely to pick up in the next 1-2 years, Longview suggests, given the likely acceleration in EM population growth (the key driver of global population growth) coupled with rising oil demand intensity and rapid/ongoing growth in (non-EV) vehicle ownership in key EM ex-China economies.
EM economies ex-China should therefore account for most (around 60%) of the growth in global oil demand this year and next.
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