Euronews Business breaks down the IEA’s latest oil market report, released this month, to see why it matters for Europe.
The International Energy Agency’s (IEA) latest oil market report paints a positive picture of global demand in 2023, but it comes with a warning: the agency has slashed its demand outlook by 400,000 barrels per day (bpd) in the fourth quarter of 2023, with Europe accounting for half of the reduction.
Against this backdrop, the agency anticipates an increase in non-OPEC production will be another important development that will influence the trend of oil prices in 2024.
What does the report say?
One of the main figures coming out of the report is that global oil demand is expected to rise 2.3 million barrels per day (mbpd) to 101.7 mbpd.
The IEA cites the stellar growth in US oil production that recently touched 13.24 mbpd, as per the country’s Energy Information Administration (EIA), and notes that it has observed increased output in so-called non-OPEC countries – those outside the Organization of the Petroleum Exporting Countries, the world’s leading oil exporters.
Gains in Guyana, Brazil and Iranian oil production have added around 1.8 mbpd to global supply, which stood at 101.9 mbpd in 2023, according to the IEA, while these countries are poised to increase global output by 1.2 mbpd in 2024.
Elsewhere, Russia has started to face the consequences of sanctions as its crude exports fell steeply in November, which also dented its export revenues, the IEA said. Earnings via oil and condensates were down 17% at $15.2 billion (€13.9 billion) on a month-on-month basis – the lowest since July 2023.
It’s interesting to note that Russia also volunteered to cut its exports and despite a monthly fall in oil revenues, its export earnings are still higher on a year-on-year basis.
More generally, global inventories have also registered a significant decline as they fell by 19.6 million barrels in October, according to the IEA.
Europe’s plunging oil demand
While the IEA has been bullish on oil demand growth for next year, there are also considerable headwinds that the markets will face – especially Europe’s.
The IEA said that about 400,000 bpd have been slashed from global oil demand for 2023’s Q4, with the old continent accounting for about half of this decline.
Global economic conditions have put downward pressure on oil prices, as they have fallen 23% since late September 2023. The IEA noted that European oil demand looks “particularly soft amid the continent’s broad manufacturing and industrial slump”.
The latest Purchasing Manager’s Index (PMI) for the Eurozone – one of the best gauges to measure economic health – backs up the IAE’s outlook: the PMI from December showed a continued fall in business activity in every quarter of this year.
Specifically, the Hamburg Commercial Bank’s Composite PMI came out at 47 in December, down from 47.6 in November. Germany, Europe’s largest economy, registered a steeper decline, signalling a recession.
While France, Europe’s second-biggest economy, slowed down faster than expected.
The employment index also stood at a 3-year low of 49.6.
The IEA report warns of a potential decrease in oil demand as supporting evidence becomes more apparent.
“The pace of expansion is set to ease from 2.8 mb/d y-o-y in 3Q23 to 1.9 mb/d in 4Q23,” the report says.
Some of the contributions to this slump include the monetary policy tightening cycle in countries across the world, and an overall slowdown in the global economy. Moreover, tighter regulations regarding efficiency standards and the rising use of electric vehicles have further dampened oil demand.
The year 2023 has been significant for global oil markets in general and European markets in particular. The IEA hopes that its report will prepare the global economy for the year to come.