As 2023 is coming to a close, the Organization of the Petroleum Exporting Countries (OPEC) has already made some important predictions regarding the oil market next year.
Indeed, OPEC's oil demand forecast for 2024 is 2.25 million barrels per day (bpd) of growth, compared to 2.44 million bpd of growth in 2023. This forecast is based on the assumption of solid global economic growth, amid continued improvements in China.
OPEC's forecast is more bullish than that of the IEA, which expects oil demand growth of just 880,000 bpd in 2024. The IEA is more concerned about the impact of a global economic slowdown and progress on energy efficiency on oil demand. There are a few reasons for this difference in perspective between OPEC and IEA.
First, let us not forget that OPEC is a cartel of oil-producing countries, so it has a vested interest in seeing higher oil prices. The IEA, on the other hand, is an international organization that is not affiliated with any particular government or industry.
Second, OPEC’s forecasts tend to be based on more optimistic assumptions about global economic growth and oil demand. The IEA's forecasts, on the other hand, are more cautious and take into account a wider range of risks, such as a global economic slowdown and the increasing adoption of renewable energy.
Third, OPEC’s forecasts are also more sensitive to changes in oil prices. If oil prices are high, OPEC tends to forecast higher oil demand. Conversely, if oil prices are low, OPEC tends to forecast lower oil demand.
The difference between OPEC and IEA forecasts is significant, and it could have a major impact on oil prices in 2024. If OPEC's forecast is correct, and oil demand grows by 2.25 million bpd, then oil prices could remain elevated. However, if IEA's forecast is correct, and oil demand growth is slower, then oil prices could come under downward pressure.
OPEC has enforced total production curbs of 3.66 million bpd, or about 3.7% of global demand. And this includes a reduction of 2 million bpd agreed on last year, and voluntary cuts of 1.66 million bpd, announced in April and extended to December 2024.
According to S&P Commodity Insights, divergences in forecasts reflect current market uncertainties. Concerns over the strength of the Chinese economy and recessionary forces in Europe are complicating demand forecasts into 2024. Geopolitical factors, including Russia’s ongoing invasion of Ukraine and the Israel-Hamas conflict, are also raising the risk of supply disruptions or new sanctions, further complicating forecasts.
Furthermore, according to S&P Commodity Insights, OPEC has not yet indicated that it will amend its policy as a result of the conflict in Israel. Several OPEC+ officials have said that they are closely watching the market for any impact and are ready to take additional measures to support stability if required. The next OPEC meeting is scheduled for November.