Analysts from groups representing oil producers and consumers have radically different views of this year’s market. But OPEC doesn’t seem to believe its own experts.
Oil demand will increase almost as fast this year as it did in 2023 and OPEC producers will need to boost output by about 1.8 million barrels a day from December levels to prevent huge stock draws. So says the Organization of Petroleum Exporting Countries.
Alternatively, demand growth will slow by almost half compared with last year and producers will have to extend their latest output cuts well beyond the current March expiry to balance the market. So says the International Energy Agency.
Forecasting oil use is notoriously difficult. Even knowing how much was consumed five years ago is tricky, with significant gray markets in many parts of the world and sometimes large historical revisions.
Comparing current calculations of last year’s demand growth with predictions made a year ago, OPEC did slightly better than the IEA, underestimating the increase by 240,000 barrels a day. The consumer group got its forecast short by 380,000 barrels.
But in each of the two previous years, the producers were wider of the mark. So that may not help us much in trying to decide who’s got a better handle on 2024.
Market participants appear to be putting greater faith in the IEA than they do in OPEC.
Brent crude is struggling to break above $80 a barrel despite a virtual blockade of the southern Red Sea, a production outage in Libya, storms hampering exports from the Black Sea and freezing temperatures hitting some US supply.
If demand growth was as robust as OPEC analysts profess, you’d think that combination of events would send oil prices soaring. It hasn’t.
And then there are OPEC’s own policy decisions, made alongside its partners in the bigger OPEC+ alliance.
Far from boosting production as its forecasts imply it needs to, the coalition agreed to make even deeper output cuts during the first quarter of this year. And there’s talk that they may extend them.
You’d be forgiven for thinking that the producer group doesn’t believe its own analysis.
–Julian Lee, Bloomberg News
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