The Paris-based agency revealed a 110,000 barrels per day (bpd) increase in its forecast for global oil demand compared to previous estimates.
The International Energy Agency (IEA) has announced a significant upward revision in global oil demand projections, citing escalating fuel needs driven by heightened shipping activity rerouted away from the Red Sea due to attacks by Yemen’s Houthi rebels. In addition, a brighter economic outlook in the United States has contributed to this surge in demand, according to the IEA’s monthly oil report released on Thursday.
The Paris-based agency revealed a 110,000 barrels per day (bpd) increase in its forecast for global oil demand compared to previous estimates, primarily attributing this adjustment to the delays in oil supplies caused by attacks perpetrated by Yemen’s Iran-aligned Houthis in the Red Sea region.
As per the latest forecast, world oil demand is anticipated to witness a substantial rise of 1.3 million bpd throughout the current year. The disruptions to international trade routes resulting from the turmoil in the Red Sea have led to prolonged shipping distances and faster vessel speeds, consequently amplifying bunker demand, the agency explained, using a term referring to the fuel requirements of ships.
The relentless attacks by the Houthis against international commercial shipping since mid-November have significantly disrupted global commerce along a route responsible for approximately 15 percent of the world’s shipping traffic. This disruption has forced firms to opt for longer and more costly routes around Southern Africa, exacerbating the challenges faced by the shipping industry.
According to the IEA, these disruptions have resulted in nearly 1.9 billion barrels of oil being held at sea by the end of last month, marking one of the highest levels since the onset of the COVID-19 pandemic. Consequently, the demand for fuel has soared, with the loading of ships with fuel in Singapore reaching unprecedented levels.
Despite the short-term boost provided by shipping disruptions, the IEA cautioned that the eventual settling down of post-pandemic turbulence and a murky economic outlook may dampen demand growth. Factors such as improving vehicle efficiencies and the expansion of electric vehicle fleets are expected to further moderate the increase in oil demand.
Moreover, the IEA highlighted that the growth in demand would remain heavily skewed towards non-OECD (Organisation for Economic Co-operation and Development) countries, with China’s dominance gradually waning. China’s oil demand growth is anticipated to decelerate from 1.7 million bpd in 2023 to 620,000 bpd in 2024.
However, the projected annual growth in demand remains notably lower than the levels witnessed in 2023, primarily due to energy efficiency improvements and the increasing adoption of electric vehicles. The total demand for oil is forecasted to reach 103.2 million bpd in 2024, compared to 101.8 million bpd recorded last year.
In light of these projections, the IEA suggested that if the producer bloc OPEC+ maintains voluntary cuts through 2024, the market would likely experience a slight deficit rather than a surplus. The agency noted that oil prices were rangebound in early March after the market factored in its latest cut announcement.
Furthermore, the IEA emphasized that oil supply growth from non-OPEC+ countries would continue to outpace the expansion in oil demand. Following the release of the report, oil prices extended their gains on Thursday.
Brent crude futures for May surged by 72 cents, or 0.86 percent, reaching $84.75 a barrel by 10:21 GMT, while US West Texas Intermediate (WTI) crude for April witnessed an increase of 83 cents, or 1.04 percent, reaching $80.55.
Analyst Tamas Varga at PVM Oil Associates remarked, “Whilst the IEA’s view on global oil balance is still more than a country mile away from OPEC’s prognosis, this report does nothing to dent the developing upbeat mood.”