OPEC Sees 2.3M BPD Demand Rise, Plans 2M BPD Supply Hike Amid $81 Oil Prices

Key Takeaway

• OPEC maintains a bullish forecast, expecting a 2.3 million barrels/day increase in oil demand in H2 2024, driven by China and emerging economies.
• Despite plans to restore 2 million barrels/day of production from October, crude prices remain near $81/barrel due to new supply from the Americas and economic uncertainties.
• OPEC's optimistic demand projections contrast with other forecasters, highlighting potential risks if global consumption doesn't meet expectations.

OPEC's Bullish Demand Forecast

OPEC has maintained its forecast for a significant increase in oil demand in the second half of the year, projecting a year-on-year rise of 2.3 million barrels per day (bpd). This is about 150,000 bpd more than the first half, driven by continued economic growth in China and other emerging economies. The organization's estimates are notably more optimistic than other industry forecasts. OPEC's monthly report suggests that the full 22-nation OPEC+ alliance will need to supply 43.6 million bpd in the third quarter, which is approximately 2.7 million bpd more than what was produced last month.

OPEC's bullish stance is underscored by its forecast that global oil consumption will increase by 2.2 million bpd this year, a figure almost 50% higher than the rate anticipated by Saudi Arabia’s state-run oil company a few months ago. The organization expects demand to average 104.5 million bpd in 2024. For the first quarter, OPEC estimates that global oil consumption surged by 2.3 million bpd, more than double the increase observed by the International Energy Agency (IEA).

Market Reactions and Price Movements

Crude prices are currently trading near $81 a barrel in London, down about 12% from a peak reached in April. This decline is attributed to OPEC’s supply restraints struggling to counter a surge of new oil from the Americas, coupled with concerns over China’s fragile economy and uncertainty regarding US monetary policy. Despite the initial slump in prices following OPEC's decision to gradually restore roughly 2 million bpd of halted production from October, prices have since recouped losses as the coalition emphasized that the hike could be postponed or canceled if necessary.

Oil futures saw slight declines on Tuesday, consolidating after a significant bounce the previous session. West Texas Intermediate (WTI) rose nearly 3%, and Brent rallied 2.5% on Monday, rebounding after a third consecutive weekly decline. The market selloff had initially overlooked the flexibility OPEC+ has to moderate or reverse the planned production unwind. However, concerns remain that the planned increase in production could lead to an uneven balance of supply and demand, even in a non-recessionary environment in 2024.

Analysts' Perspectives

Analysts have mixed views on the current market dynamics. Peter Cardillo, chief market economist at Spartan Capital Securities, noted, “The plan has raised concerns that production will be increasing, causing an uneven balance of supply and demand despite a non-recessionary environment in 2024.” He added, “We see prices staying under pressure in the very near term with spot falling to the $70 range.”

Warren Patterson and Ewa Manthey, strategists at ING, observed that the decline in crude prices was modest overall, despite a stronger-than-expected May jobs report that pushed up Treasury yields and the U.S. dollar. A stronger dollar makes commodities priced in the unit more expensive for buyers using other currencies. They also pointed out that the broader sentiment in the oil market remains bearish.

Bulls may find some solace in the weekly tally of U.S. oil and natural-gas rigs from oilfield services firm Baker Hughes. The number of active oil rigs fell by 4 last week to 492, the lowest level since January 2022. The gas rig count also fell by 2 over the week to 98, a level last seen in October 2021.