The OPEC oil cartel and the IEA, the International Energy Agency created in response to the Arab oil embargo in the 1970s, have grown so far apart in their forecasts of global oil demand and energy system needs that their nearest-term and long-term demand projections are a world apart.
OPEC sees global oil demand growth this year at just over 2 million barrels per day (bpd), even after slightly lowering the estimate in the past two months.
In its latest assessment, the IEA believes growth would be below 1 million bpd. That’s a huge gap of 1.1 million bpd in the estimates, with just three months left in 2024.
The chasm between the two forecasting bodies has widened so much in the past two years that they now hold contrasting views on medium and long-term global oil demand and how the world should approach the energy transition.
OPEC May Have Overestimated 2024 Demand Growth
For this year’s oil demand growth, it looks like OPEC may have been overly optimistic when it pinned its hopes on China to drive more than 2-million-bpd growth when it published its first assessment for 2024 in July 2023.
A year later, in August 2024, OPEC revised down – for the first time – its 2024 demand growth estimate on the back of underwhelming data so far this year and expectations of softening Chinese demand growth.
Meanwhile, the IEA has been slightly, but consistently, revising down its much lower initial growth forecast during the course of this year.
Its latest estimate of 2024 global oil demand growth from earlier this month is for just a 900,000 bpd increase, due to rapidly slowing Chinese consumption. Global oil demand growth in the first half of 2024 was only 800,000 bpd year-on-year, the slowest pace of growth since 2020, the IEA said.
The main driver of the sluggish growth has been “a rapidly slowing China,” where oil consumption contracted on an annual basis for a fourth straight month in July, by 280,000 bpd, the IEA said.
Referring to China, the agency forecasts the country’s oil demand is now set to expand by only 180,000 bpd this year “as the broad-based economic slowdown and an accelerating substitution away from oil in favour of alternative fuels weigh on consumption.”
“Chinese oil demand is currently firmly in contraction, falling by 1.7%, or 280 000 b/d, year-on-year in July, a marked contrast with the 9.6% average pace of growth in 2023. Accordingly, we expect annual growth of only 1.1%, or 180 000 b/d, in 2024,” the agency said.
So far this century, China “has been the cornerstone of the growth in global oil demand,” the IEA notes, adding that over the past decade, Chinese oil demand has grown by more than 600,000 bpd each year, accounting for over 60% of the total global average increase.
The 180,000 bpd growth the IEA expects this year is just a fraction of the growth rates in previous years.
In contrast, OPEC sees Chinese oil demand growth at over 600,000 bpd this year, although it cut its estimate to 653,000 bpd from 700,000 bpd. OPEC also noted in its September report that “headwinds in the real estate sector and the increasing penetration of LNG trucks and electric vehicles are likely to weigh on diesel and gasoline demand going forward.”
OPEC now expects global demand will grow by 2.03 million bpd in 2024, down from its previous estimate of 2.11 million bpd growth.
Even with this latest revision, OPEC continues to be too optimistic about global demand growth. Most analysts expect growth at around 1 million bpd-1.5 million bpd, which is closer to the IEA’s projection.
With three months left in 2024, it’s also unusual for OPEC and the IEA to have such diverging views on demand. Their respective projections have never been more than 350,000 bpd apart by September in any year since 2010, according to The Wall Street Journal.
Long-Term Decline?
The agency and the cartel are also a world apart in their long-term estimates of global oil demand.
In its September report, the IEA reiterated its forecast of peak oil demand by 2030, saying that “With the steam seemingly running out of Chinese oil demand growth, and only modest increases or declines in most other countries, current trends reinforce our expectation that global demand will plateau by the end of this decade.”
China’s oil demand growth has been slowing down due to weaker economic performance and a shift to electric vehicles and LNG-fueled trucks, with gasoline demand expected to peak this year or next.
Case in point: China’s sales of new energy vehicles accounted for 51.1% of total passenger vehicle deliveries in July, topping the sales of conventional internal combustion engine vehicles for the first time, according to the China Passenger Car Association.
While OPEC also recognizes there is a structural shift in road fuel demand in China, it’s not backing from its estimate that global oil demand will continue to grow and peak oil demand is not on the horizon. In its 2024 World Oil Outlook (WOO) launched this week, OPEC said that “For oil alone, we see demand reaching over 120 million barrels a day by 2050, with the potential for it to be higher.”
“There is no peak oil demand on the horizon,” the cartel said, noting that “What the Outlook underscores is that the fantasy of phasing out oil and gas bears no relation to fact.”
OPEC has also slammed on several occasions the IEA’s forecast of peak oil demand by 2030 as “dangerous” and “a continuation of the IEA’s anti-oil narrative.”
By Tsvetana Paraskova for Oilprice.com