What Does the Current Global Oil Demand Forecast Indicate?

What Does the Current Global Oil Demand Forecast Indicate?

Posted: April 25, 2024

Understanding the oil demand forecast is essential to navigate the intricate web of global economies and industries that rely on this crucial resource. These forecasts provide a compass that governments, investors, and corporations can use in several ways. Namely, to align their strategies, hedge against market volatility, and anticipate changes in energy policies.

Forecasts are based on trends such as geopolitical relations and global consumer prices that could influence demand. These projections offer valuable insights as the world’s energy landscape evolves amid a shift in demand patterns and production capabilities. This is especially true in powerhouse economies and surging industry sectors.

These projections also serve as a barometer for oil-dependent sectors such as transportation, manufacturing, and agriculture. Specifically, they impact operational costs and planning.

Let’s break down what the current global oil demand forecast indicates. We’ll also look at the implications for global economic stability and the dynamics of energy markets worldwide.

What the 2023 Forecasts Said

In late 2023, the International Energy Agency (IEA) adjusted its oil demand and supply growth forecasts for 2024. It increased demand estimates by 100,000 barrels per day (b/d) and supply estimates by 200,000 b/d. This revision was partly due to robust Chinese demand and strong production in the U.S. and Brazil.

China’s oil demand surged to a record high in September 2023, driven by its petrochemical industry. The surge was in contrast with declining production in other Asia-Pacific countries in the Organization for Economic Co-operation and Development (OECD).

global oil demand forecast illustration
Photographer: Corona Borealis Studio

Global oil demand has, however, been predicted to slow in 2024, with demand concentrated mainly in non-OECD countries, especially China. In its Q4 report, the IEA anticipated visible macroeconomic pressures in 2024. Considering economic and geopolitical uncertainties, which could cause fluctuations. This would diminish the exceptional recovery effects experienced in 2023.

As a result, the 2024 supply growth forecast has been slightly reduced from 2023 levels. The predictions for the first quarter of 2024 expect a surplus in the market.

Factors Currently Affecting Global Oil Demand

The COVID-19 pandemic had a profound impact on global oil demand due to lockdowns and reduced travel. China, which was one of the last countries to lift its restrictions, is experiencing a rebound in demand. But the long-term effects of the pandemic include changes in work patterns, with potential sustained impacts on commuting and business travel demands.

Post-pandemic, Russia’s invasion of Ukraine and tensions in the Middle East have led to significant disruptions in the energy market. Sanctions on Russia, a major oil producer, have prompted a reshuffling of global oil trade flows, as many countries seek alternative suppliers. This has also accelerated the European Union’s efforts to reduce dependency on Russian energy sources. These shifts have broad implications for future demand.

What’s more, the Middle East is responsible for one-third of global seaborne oil trade. But conflict in the area has caused market instability early in 2024. For instance, in response to Houthi attacks on tankers in the Red Sea, U.S. and UK airstrikes heightened concerns about a potential conflict and threats to crucial oil trade channels. Despite stable oil and liquefied natural gas (LNG) production, more shipowners are changing their shipping routes due to these concerns. Further unrest could upset global markets and influence investment decisions.

Energy Shifts

Another significant factor currently affecting global oil demand is the shift toward clean energy economies. Stringent climate policies and commitments to net-zero emissions are influencing investments in renewable energy sources and technologies that decrease reliance on oil.

The growth in the use of electric vehicles (EVs) and improvements in fuel economy will lead to a decline in oil demand for transport. The shift in demand, however, will be more tangible after 2026. Governments worldwide are incentivizing electric transportation, which will further dampen oil demand growth in the transportation sector.

Despite the decline in demand for transport fuels, the strong demand from the petrochemical sector supports overall oil consumption growth. Petrochemicals are used to produce a wide range of products. Growth in this sector is particularly strong in emerging economies. As these countries industrialize and urbanize, their energy needs will increase and impact oil demand. However, the speed at which they adopt cleaner technologies will influence the demand trajectory.

illustration of trendlines showing oil demand increase
Photographer: DifferR

The Organization of the Petroleum Exporting Countries (OPEC) and its allies (collectively OPEC+) have played a key role in managing oil production levels to balance the market. Their decisions directly impact global oil supply, prices, and investment in oil and gas exploration and production.

What Industry Leaders Have to Say

The key forces driving oil markets in 2024 represent major sources of uncertainty and volatility. These include the cohesion or lack thereof within OPEC+ and the priorities and actions of Saudi Arabia, the world’s top oil exporter. The recovery and demand of China, the world’s top oil importer, and the potential geopolitical conflicts in the Middle East also play a critical role.

While oil prices dropped 10% between June and December 2023, they have seen recovery. Since early February 2024, prices returned to the $80 per barrel range. Recovery took place amid escalating geopolitical tensions in the Middle East, increased demand from Asia, and voluntary cuts by OPEC+. Despite predictions of a surplus, these factors have pressured the market toward deficits at the start of 2024.

In 2024, the market is set to be tight, with a summer surge anticipated in demand, especially in the US. OPEC+ decisions will shape supply, and even without further cuts, liquid stocks are expected to be drawn down.

In April oil prices rose from $82 to over $90 per barrel due to strong fundamentals and increased Middle East tensions, including the Israeli-Iranian conflict. Rystad Energy expects a stabilization of geopolitical risk premiums, leading to an average Brent price of $89 per barrel for the rest of the year.

“Gilmore has clearly seen the increased activity offshore with a resurgence of flow control orders associated with installed base MRO spares and system upgrades with our GEN2 products for Drilling as drillers focus on keeping their rig fleets working. Customers are also driving new product developments as well as a growing HIPPS demand in the Production market. And requests for our industry leading debris tolerant reservoir sampling valves have increased significantly in volume spare kits for the Downhole market.”

“However, the US land Unconventional market has regressed slightly since Q3 of 2023. Largely due to low gas prices in the US market. Once the US LNG infrastructure to support increased exports is operational, we hope to see a significant rebound in well stimulation. Gilmore’s recent product launch of our new Agiliti SAFEGUARDPRO™ Electric Pressure Relief Valve (EPRV) System and advancements in our Agiliti™ Check Valve are experiencing significant traction due to their industry leading reliability performance.”

“Overall, we feel that the current level of activity is likely to remain through the balance of 2024 and into 2025 of course highly dependent on the geopolitical environment.” stated David Nemetz, Gilmore CEO

Capital Expenditure and Purchases

Global upstream capital expenditures (capex) and oil and gas service purchases are also set for noteworthy increases.

In 2024, global upstream capital expenditures are expected to reach approximately $612 billion. This marks a $23 billion rise from 2023 levels. Global spending on upstream oil and gas services is expected to reach $715 billion, a $36 billion increase (5.4%) from 2023.

The growth is primarily attributed to the initiation of offshore projects in the Middle East and South America. Another major driver is the significant onshore LNG ventures in the United States.

2024 Global Oil Demand Forecast: Charting the Future

The global oil demand forecast underscores a period of significant transition marked by geopolitical fluctuations, technological advancements, and a pressing need for energy diversification. The data paints a picture of an industry on the cusp of change amid dual challenges. It must meet rising energy requirements and shift toward more sustainable practices.

Gilmore offers cutting-edge flow control solutions and a flexible supply chain. As a result, its clients can rely on Gilmore as a strategic technology partner that will support them in the operational challenges of today and prepare for the energy demands of tomorrow.

Embrace the opportunity to optimize your operations and drive industry-forward innovations. Contact us today to connect with our expertise and extensive global network.

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