What Might IEA's August 2024 Oil Market Report Mean for Markets?
The International Energy Agency's (IEA) August 2024 Oil Market Report (OMR) offers a wealth of insights into the current and future state of the global oil market. This report, which covers various aspects such as supply, demand, inventories, prices, and refining activities, is crucial for understanding the market dynamics and making informed investment decisions. The following analysis goes into the key highlights and their potential implications for global financial markets.
Key Highlights from the IEA's Oil Market Report - August 2024
Global Oil Demand
The report highlights a significant deceleration in global oil demand growth. In the second quarter of 2024, the year-on-year increase was just 710 kb/d, the lowest since Q4 2022. This slowdown is primarily attributed to reduced Chinese oil consumption, marking the end of the post-pandemic rebound. The IEA forecasts that global demand will grow by less than 1 mb/d in both 2024 and 2025 due to factors like subpar economic growth, increased efficiencies, and the rise of electric vehicles (EVs).
Global Supply
Conversely, global oil supply saw a modest increase of 150 kb/d in June 2024, reaching 102.9 mb/d. This growth was driven by reduced field maintenance and a boost in biofuels production. Non-OPEC+ countries are expected to play a significant role in this supply increase, contributing an annual rise of 770 kb/d in 2024 and 1.8 mb/d in 2025.
Refinery Throughputs
Refinery throughputs are projected to rise by 950 kb/d to 83.4 mb/d in 2024 and by another 630 kb/d to 84 mb/d in 2025. However, weak demand and poor margins have pressured crude processing in China and Europe. While margins in the Atlantic Basin have declined to near multi-year lows, Asian margins have seen a modest recovery.
Crude Oil Prices
Brent crude oil prices experienced a recovery in June 2024, increasing by $5/bbl to $86/bbl. This price recovery was supported by falling crude stocks, investor short covering, and renewed geopolitical tensions in the Middle East.
Inventories
Global observed oil inventories rose for the fourth consecutive month in May 2024, with OECD industry stocks increasing by 27.8 mb to 2,845 mb. Despite this rise, OECD stocks remain 69 mb below their five-year average. Preliminary data for June 2024 indicates a decline in global oil stocks by 18.1 mb, mainly driven by crude oil.
Implications for Markets
Price Stability
The IEA's forecast suggests that global oil prices will remain relatively stable. Brent crude is expected to average $82/bbl in 2024 and $79/bbl in 2025. This stability is largely due to balanced global supply and demand dynamics. However, there is a higher likelihood of prices declining given potential production increases and geopolitical risks.
OPEC+ Influence
OPEC+ production restraint is expected to keep prices near current levels. The group's production targets have been lowered in response to weakening global oil demand and falling crude oil prices. However, some OPEC+ participants may push to end their production cuts, potentially leading to higher production and lower prices by mid-2025.
Non-OPEC+ Production
Non-OPEC+ countries, particularly the United States, Brazil, and Guyana, are projected to significantly contribute to supply growth. The supply from these countries is expected to reach a record level of approximately 103.8 million barrels per day, meeting the anticipated smaller demand growth in 2024.
Energy Transition
The IEA's medium-term outlook emphasizes the impact of the energy transition on oil demand. Increased use of electric vehicles (EVs) and emerging clean energy technologies are expected to contribute to a slower growth trajectory for oil demand. This shift is anticipated to continue through to 2030.
Conclusion - Markets
The IEA's August 2024 Oil Market Report suggests that the global oil market will remain relatively well supplied, with balanced supply and demand dynamics expected to keep prices stable. However, geopolitical tensions and potential changes in OPEC+ production policies could introduce volatility. The ongoing energy transition and increasing efficiencies are expected to continue shaping the long-term trajectory of the oil market.
News Analysis
A recent article from Bloomberg titled "Oil Market Faces Surplus If OPEC+ Boosts Supply, IEA Data Shows" (August 13, 2024), highlights the potential for a market surplus if OPEC+ proceeds with plans to boost supplies. This could significantly impact prices, especially if demand does not pick up as expected.
An article from Reuters titled "OPEC Cuts Oil Demand Growth Forecast, Highlighting Dilemma Over Production Cuts" (August 12, 2024), discusses how OPEC has revised its demand growth forecast downwards due to weaker-than-expected Chinese consumption. This aligns with IEA's observations of decelerating demand growth and could further pressure OPEC+ to reconsider their production strategies.
The IEA's own website provides a detailed analysis in its "Oil Market Report - July 2024" (July 9, 2024), noting that global oil supply growth is forecasted to average 770 kb/d for the year. This underscores the ongoing supply growth from non-OPEC+ countries and sets the stage for potential market oversupply if demand does not keep pace.
Summary
Overall, while the IEA's August report suggests a stable market outlook with balanced supply and demand dynamics, external factors such as OPEC+ production decisions and geopolitical developments could introduce significant volatility. Investors should closely monitor these variables when making decisions related to oil-related assets.
This document was created by Daizy using institutional-grade data and in collaboration with several external Large Language Models. All calculations were performed by the Daizy LLM Analytics Service. The contents of this document do not constitute investment, tax, or legal advice, and Daizy (Vesti.ai Ltd) is not authorized to give any advice. [Please refer to our terms of use.]
