Oil Market Report - January 2024

• Global oil demand growth slowed to 1.7 mb/d y-o-y in 4Q23 – well below the 3.2 mb/d rate registered during 2Q23-3Q23, mirroring the unwinding of China’s post-pandemic release of travel demand. Growth is projected to ease from 2.3 mb/d in 2023 to 1.2 mb/d in 2024, as macroeconomic headwinds, tighter efficiency standards and an expanding EV fleet compound the baseline effect.
• World oil supply is forecast to rise by 1.5 mb/d to a new high of 103.5 mb/d, fuelled by record-setting output from the US, Brazil, Guyana and Canada. Non-OPEC+ production will dominate growth this year, accounting for close to 1.5 mb/d. By contrast, OPEC+ supply is expected to hold broadly steady on last year, assuming extra voluntary cuts that started this month are phased out gradually in 2Q24.
• Divergence in regional refinery profitability narrowed further in December as margins in the Atlantic Basin weakened but strengthened in Singapore. Refinery crude throughputs are forecast to average 83.3 mb/d in 2024, overtaking 2018’s record of 82.5 mb/d. However, the disparity between OECD and non-OECD runs will continue to widen, as new capacity starts in the Middle East, Africa, and China.
• Russian oil exports rose by 500 kb/d to a nine-month high of 7.8 mb/d in December. Crude shipments were up by 240 kb/d m-o-m to 5 mb/d while product flows rose by 260 kb/d. At the same time, estimated export revenues slumped to a six-month low of $14.4 billion, as Russian oil price discounts increased and benchmark oil prices declined.
• Global observed oil inventories were down by 8.4 mb in November, to their lowest since July 2022, with crude oil and middle distillates particularly tight. A decline in oil on water (-12 mb) was partially offset by on-land stock builds (+3.6 mb). Oil products decreased by a substantial 24.6 mb, while crude oil rose by 16.2 mb. Preliminary data suggest that global inventories rose in December, as oil on water surged.
• Benchmark crude oil futures recovered by around $4/bbl from their mid-December lows as tensions in the Red Sea reignited geopolitical concerns. Prices declined last month amid comfortable physical balances, with record US oil supply making its way into the Atlantic Basin. Fund exchange positioning slumped to its most bearish level in years. At the time of writing, Brent futures were trading at $77/bbl.
  

Rising geopolitical tensions in the Middle East, which accounts for one-third of the world’s seaborne oil trade, has markets on edge at the start of 2024. US and UK airstrikes on Houthi targets in Yemen in response to attacks on tankers in the Red Sea by the Iran-backed group, have raised concerns that an escalation of the conflict could further disrupt the flow of oil via key trade chokepoints. While oil and LNG production have not been impacted, a rising number of ship owners are diverting cargoes away from the Red Sea. At the time of writing, Brent futures were just above $77/bbl and WTI around $72/bbl.

Barring significant disruptions to oil flows, the market looks reasonably well supplied in 2024, with higher-than-expected non-OPEC+ production increases set to outpace oil demand growth by a healthy margin. While OPEC+ supply management policies may tip the oil market into a small deficit at the start of the year, strong growth from non-OPEC+ producers could lead to a substantial surplus if the OPEC+ group’s extra voluntary cuts are unwound in 2Q24.

Global oil supply is forecast to rise by 1.5 mb/d to a new high of 103.5 mb/d in 2024. The Americas – led by the United States, Brazil, Guyana and Canada – will dominate gains in 2024, just as the region did last year. After a steep rise in output in 4Q23, global oil supply is expected to decline this month as a blast of cold weather sweeping through the United States and Canada takes a toll on oil operations.

Increases in global oil demand are set to halve from 2.3 mb/d in 2023 to 1.2 mb/d this year, with the post-Covid recovery all but complete, GDP growth below trend in major economies, and as energy efficiency improvements and electrification of the vehicle fleet curb oil use. Over the course of 2023, the pace of demand growth outside of China slowed significantly, to around 300 kb/d on average during 2H23. China will continue to lead oil demand growth in 2024, with its expanding petrochemical sector gaining an ever-larger share.

At the start of 2024, the risk of global oil supply disruptions from the Middle East conflict remains elevated, particularly for oil flows via the Red Sea and, crucially, the Suez Canal. In 2023, roughly 10% of the world’s seaborne oil trade, or around 7.2 mb/d of crude and oil products, and 8% of global LNG trade passed through this major trade route. The main alternative shipping route around Africa’s Cape of Good Hope extends voyages by up to two weeks – adding pressure on global supply chains and boosting freight and insurance costs.

As always, the IEA stands ready to respond decisively if there is a supply disruption and the global oil market requires additional barrels. IEA member countries collectively hold stocks of around 4 billion barrels, including 1.2 billion barrels of government-controlled stocks held exclusively in case of an emergency. That buffer should help assuage market jitters and angst among governments, industries and energy consumers.