Global Oil Market in Flux: Slowing Demand, Volatile Prices, and Shifting Supply Dynamics Shape 2024 Outlook

Executive Summary

The latest reports from the International Energy Agency (IEA) and OPEC provide a detailed analysis of global oil market trends, highlighting a slowdown in demand growth, fluctuating supply, and volatile prices. While the IEA notes an increase in global oil demand of 870 kb/d in Q2 2024, economic uncertainties, especially in China, are dampening future growth expectations. OPEC's outlook indicates stable demand growth but highlights challenges in production adjustments and refinery margins. Both reports underscore the complex interplay of economic factors and geopolitical tensions shaping the global oil market.

Key Takeaways: IEA Report

1. Slower Demand Growth: Global oil demand growth is expected to increase by less than 1 mb/d in 2024 and 2025, a significant drop from 2.1 mb/d in 2023.
2. Supply Dynamics: Non-OPEC+ countries, particularly in the Americas, will drive most of the anticipated supply growth, offsetting OPEC+ production cuts.
3. Refinery Margins: Refinery margins are under pressure due to weak processing rates, particularly in China and Europe.
4. Inventory Tightening: Global oil inventories decreased in June 2024, indicating a tightening market amid peak demand.
5. Price Volatility: Brent crude prices have fluctuated, trading around $80/bbl in early August 2024, reflecting economic and geopolitical uncertainties.

Key Takeaways: OPEC Report

1. Stable Demand Growth: OPEC maintains a global oil demand growth forecast of 2.2 mb/d in 2024 and 1.8 mb/d in 2025.
2. Non-OPEC Supply Growth: Non-OPEC liquids supply is expected to grow by 1.2 mb/d in 2024, driven by the US, Canada, and Brazil.
3. Refinery Margins: Margins in the Atlantic basin have retracted for four consecutive months, while Southeast Asia sees gains.
4. Tanker Freight Rates: Freight rates showed mixed movements, with declines in the Middle East-to-East route and increases on the USGC to Europe route.
5. Inventory Builds: OECD commercial oil stocks rose in May 2024, though still below the 2015-2019 average.

Conclusion

Reports from both the International Energy Agency (IEA) and OPEC underscore the persistent difficulties, including sluggish demand growth, price volatility, and evolving supply dynamics. While the IEA adopts a cautious outlook due to economic uncertainties, OPEC maintains a more stable demand forecast - as ever, I'd advice heading for the mean average between the two. Both organisations acknowledge the crucial role of non-OPEC production in meeting future demand, highlighting the ongoing pressure on refinery margins and the delicate balance of supply and demand.

Looking ahead toward the remainder of 2024, the offshore oil and gas sector must navigate significant macro challenges. The intensifying energy transition demands that companies balance traditional operations with investments in low-carbon technologies, a shift that is complicated by the need to remain profitable while adhering to increasingly stringent environmental regulations. Geopolitical instability, particularly in the Middle East, further exacerbates supply chain disruptions, complicating investment decisions and operational stability.

Technological advancements, while necessary for improving efficiency, present their own set of challenges due to high implementation costs and the ongoing shortage of skilled labour. The sector also faces heightened scrutiny under Environmental, Social, and Governance (ESG) criteria, with potential carbon pricing adding to the financial burden. Ultimately, the future of the oil market will depend on how these diverse factors evolve, requiring vigilance from both policymakers and industry players to ensure stability and sustainability in an increasingly volatile environment.

About The Author: David is a globally acknowledged expert in the saturation diving vessel market and subsea construction. Over a career spanning more than two decades, he has led the advisory team for one of the world's largest saturation diving company transactions in recent times. Currently, David advises numerous companies on strategic mergers and acquisitions in the offshore energy sectors.

As a member of the board of directors at Archer Knight, David has been instrumental in the company’s growth. His expertise in business development, strategy, market intelligence, and communications has underpinned Archer Knight’s success, including the completion of two CFE raises and the merger with Energy Maritime Associates.

David's experience spans all critical regions across global energy hubs. His deep understanding of these markets has enabled him to lead successful strategic and tactical initiatives, positioning firms for growth and competitive advantage. His standing as an industry authority was further reinforced by his five-year tenure as an executive director of Subsea UK, now The Global Underwater Hub.

David’s blend of strategic insight, market acumen, and leadership makes him a respected figure in the offshore energy industry. His dedication to advancing the sector and his proven track record of success continue to inspire confidence among peers and clients alike.