OPEC trims 2024 global oil demand forecast to 1.93 million bpd on bulk of China downgrade; Brent drops 2% to $77

The Organization of the Petroleum Exporting Countries and allies, including Russia (OPEC+) cut its forecast for global oil demand growth in 2024 and also lowered its projection for next year, marking the oil producer group's third consecutive monthly downward revision due to a slowdown in global fuel use. 

OPEC said in its monthly report that the world oil demand will rise by 1.93 million barrels per day (bpd) in 2024 -106,000 barrels per day less previously estimated, or the growth of 2.03 million bpd it expected last month. OPEC said this year's demand growth was still above the historical average of 1.4 million bpd seen prior to the COVID-19 pandemic, which caused a plunge in oil use. 

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China accounted for the bulk of the 2024 downgrade. OPEC trimmed its Chinese growth forecast to 580,000 bpd from 650,000 bpd. While government stimulus measures will support the fourth-quarter demand, crude oil use faces headwinds from the economic challenges and moves towards cleaner fuels.  

For 2025, OPEC cut its global demand growth estimate to 1.64 million bpd from 1.74 million bpd. Until August, OPEC had kept the forecast unchanged since it was first made in July 2023. Forecasters are widely divided on the strength of demand growth in 2024, due to differences over China and the pace of the world's switch to cleaner fuels. OPEC is at the top of industry estimates but has a long way to go to match the International Energy Agency (IEA)'s far lower view.

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OPEC+ member cuts

With the three successive downgrades, OPEC is starting to retreat from the strongly bullish projections it has held throughout this year. Analysts say the actions of OPEC members suggest a lack of confidence in the outlook of its Vienna-based secretariat, delaying their plans to restore halted crude production even as the cartel’s forecasts point to a major supply deficit.

OPEC 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. The group was due to start unwinding the most recent layer of cuts of 2.2 million bpd from October, but decided to delay the plan for two months after oil prices slumped. 

While crude prices have been boosted by conflict in the Middle East, at $77 a barrel, it is too low for some OPEC nations. The coalition’s efforts to shore up prices have been undermined by countries that have failed to deliver their cutbacks — notably Iraq, Kazakhstan and Russia. OPEC said these three countries pumped oil above quotas.

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OPEC's report showed production fell in September due to unrest in Libya and a cut by Iraq. OPEC pumped 40.1 million bpd, down 557,000 bpd from August. Iraq pumped 4.11 million bpd, down 155,000 bpd but still above its four million bpd quota.

Kazakhstan increased production by 75,000 barrels a day to 1.545 million, flouting its pledge to perform better. Russia reduced by 28,000 per day but also remained above its ceiling, at approximately nine million per day. The OPEC report projects demand for OPEC crude at 43.7 million bpd in the fourth quarter, allowing room for higher production.

OPEC is expected to make a decision on its scheduled December output hike in the coming weeks. Led by Saudi Arabia, OPEC and its allies are due to begin gradually restoring 2.2 million barrels a day in monthly tranches from December — two months later than originally planned. The alliance is due to meet on December 1 to consider output policy for 2025.

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Crude oil falls 2% after OPEC report

Oil prices fell two per cent on Monday as OPEC lowered its 2024 and 2025 global oil demand growth view again while China's oil imports fell for a fifth month in a row. China's stimulus plans also failed to inspire investor confidence while markets continued to watch for potential Israeli attacks on Iranian oil infrastructure.

Brent crude futures settled $1.58, or two per cent, lower at $77.46 per barrel, while US West Texas Intermediate (WTI) crude futures fell $1.73, or 2.29 per cent, to $73.83 per barrel. Brent had gained 99 cents last week, while WTI climbed $1.18. Back home, crud eoil futures settled 0.08 per cent lower at ₹6,240 per barrel on the multi commodity exchange (MCX).

China's crude imports for the first nine months of the year fell nearly three per cent from last year to 10.99 million bpd, data showed. Declining Chinese oil demand caused by the growing adoption of electric vehicles (EV), as well as slowing economic growth following the COVID-19 pandemic, has been a drag on global oil consumption and prices.

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China news outweighed market concerns over the lingering possibility that an Israeli response to Iran's October 1 missile attack could disrupt oil production. The US said it would send troops to Israel along with an advanced anti-missile system in an unusual deployment meant to bolster the country's air defenses. The US dollar also hit a nine-week high on Monday. A firmer US currency can hurt demand for dollar-denominated oil from buyers using other currencies.

Where are oil prices headed?

Analysts said WTI crude oil prices closed 1.5 per cent higher last week at $75.56 per barrel, despite volatility driven by ongoing concerns about Israel's retaliatory strikes on Iran, as well as significant increases in US stockpiles and disappointment over the lack of new stimulus announcements from China.

“Oil prices are likely to remain volatile as traders monitor developments in the Israel-Iran conflict. Over the weekend, a Hezbollah drone attack killed four Israeli soldiers, while the Pentagon said it would send an advanced missile defense system and associated troops to help shield its ally,” said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

Analysts said the University of Michigan’s consumer sentiment survey said that the US consumer sentiment decline for the first time in last three months and increased demand worries. The US crude oil stocks were also unexpectedly surged last week despite Hurricane Milton supply disruptions. 

“Escalating tensions in the middle-east and Israel’s plan to retaliate on Iran is supporting crude oil prices in the international markets. Chinese stimulus hopes after long holiday’s is also supporting market sentiments. We expect crude oil prices to remain volatile. Crude oil is having support at $73.10-72.50 and resistance is at $74.20-75.00 today’s session. In INR crude oil has support at ₹6,280-6,210 while resistance at ₹6,420-6,480,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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