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Oil prices slide as Opec cuts demand forecast

Global oil demand would increase by 2.11 million barrels per day in 2024, down from the 2.25 million barrels per day expected last month

Organisation of the Petroleum Exporting Countries (Opec) has cut its forecast for global oil demand growth in 2024 due to softer expectations for China, highlighting the dilemma faced by the wider Opec+ group in raising production from October.

Following Opec's first cut of its 2024 forecast since July 2023, oil prices fell on Tuesday, ending a five-day winning streak.

Global benchmark Brent crude futures dipped 78 cents, or 0.95 per cent, to $81.52 a barrel at 03.30 GMT. US West Texas Intermediate crude futures slid to $79.33 a barrel, down 73 cents, or 0.91 per cent.

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However, the International Energy Agency (IEA), which represents industrialised nations, projects much lower demand growth for oil in 2024 compared to Opec, estimating it at 970,000 barrels per day. On Tuesday, the IEA maintained its global oil demand growth forecast for 2024 but reduced its 2025 estimate, citing reduced consumption in China.

According to the IEA, the end of China's post-Covid economic recovery was limiting global oil demand, but advanced economies, particularly the US, where a third of the world's gasoline is consumed, are offsetting this decline. "For now, supply is struggling to keep pace with peak summer demand, tipping the market into a deficit," the Paris-based energy watchdog said in its monthly oil report.

The latest market outlook of Opec reflects growing concerns over China's weaker-than-expected demand due to declining diesel consumption and economic challenges in its property sector. "Crude oil demand concerns remain," noted Yeap Jun Rong, market strategist at IG, emphasising uncertainties ahead of the US inflation data release. "Any sign of heightened economic risks could put pressure on oil prices, especially as Opec+ has reduced its 2024 demand forecast and is planning to ease production cuts starting in October, which may suggest a less tight oil market," Yeap added.

“Crude oil demand concerns remain on the radar,” said Yeap Jun Rong, market strategist at IG, noting lingering reservations ahead of upcoming US inflation data. “Any reflection of higher economic risks could weigh on oil prices, at a time when Opec+ has cut their 2024 demand forecast and are set to roll back their production cuts starting October, which may point to a less tight oil market ahead,” Yeap added.

In its monthly report on Monday, Opec predicted that global oil demand would increase by 2.11 million barrels per day in 2024, down from the 2.25 million barrels per day expected last month.

Market analysts said there is a wide split in 2024 demand growth forecasts due to differences over China and the pace of the world’s transition to cleaner fuels. Opec is still at the top of industry estimates and has a long way to go to match the International Energy Agency’s far lower view.

“This slight revision reflects actual data received for the first quarter of 2024 and in some cases for the second quarter, as well as softening expectations for China’s oil demand growth in 2024,” Opec said in the report.

This year’s demand growth is still above the historical average of 1.4 million barrels per day seen prior to the Covid-19 pandemic in 2019, which caused a plunge in oil use. This year's demand growth will peak as summer travel demand will remain robust.

“Despite the slow start to the summer driving season compared to the previous year, transport fuel demand is expected to remain solid due to healthy road and air mobility,” said the report.

Opec also cut next year’s demand growth estimate to 1.78 million barrels per day from 1.85 million barrels per day previously, also at the top end of what the industry expects.

Oil last week touched the lowest price this year near $75 per barrel due to concerns about Chinese demand and a possible US recession. Prices were steady after the report was released, trading above $80.

Opec+, which groups Opec and allies such as Russia, has implemented a series of output cuts since late 2022 to support the market, most of which are in place until the end of 2025.

On August 1, the alliance confirmed a plan to start unwinding the most recent layer of cuts of 2.2 million barrels per day from October, with the caveat that it could be paused or reversed if needed.

The group still has a month to decide if they should start releasing the oil from October. The group will also study oil market data in the coming weeks, a source close to Opec+ said last week.

The report showed that actual production is increasing nonetheless, with Opec+ pumping 40.9 million barrels per day in July, up by 117,000 barrels per day from June, led by an increase from Saudi Arabia.

The report projects demand for Opec+ crude, or crude from Opec plus the allied countries working with it, at 43.8 million barrels per day in the fourth quarter, in theory allowing room for higher production by the group.

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