Daily Management Review

Division Between OPEC, And IEA About Oil Demand The Highest Since At Least 2008


Division Between OPEC, And IEA About Oil Demand The Highest Since At Least 2008
According to reports, the International Energy Agency and producer group OPEC, which are the world's most carefully monitored forecasts of oil demand growth, have different views on fuel usage than they have for at least 16 years.
The Organisation of Petroleum Exporting Countries and the IEA, which represents industrialised nations, are not in agreement about how strong the oil market will be in 2024 or, in the long run, how quickly the world will be switching to cleaner fuels. As a result, traders and investors are receiving conflicting messages from both organisations.
The IEA forecast in February of this year that demand would increase by 1.22 million barrels per day (bpd) in 2024, but OPEC anticipated 2.25 million bpd in its February report. The disparity is almost 1% of the global demand. 
"The IEA has a very strong perception that the energy transition will move ahead at a much faster pace," Neil Atkinson, a former head of the IEA's Oil Markets Division, said.
"Both agencies have boxed themselves in with a position, which is why they have this enormous gulf in demand forecasts."
According to reports, the adjustments made by each agency to its oil demand projections from 2008 to 2023 as well as the first two months of this year in order to contextualise the disparity.
The time frame was selected to provide a sufficiently extended time series for making inferences, and it encompassed significant fluctuations in the demand for oil, beginning with the 2008 financial crisis and concluding with the 2020 pandemic and ensuing demand rebound.
In July 2008, international oil futures reached an all-time high of about $150 per barrel; today, they are only about $80.
According to an analysis of monthly figures from OPEC and the IEA spanning 16 years, the deficit of 1.03 million barrels per day in February was the largest throughout that time.
When asked if it believed its 2024 projections were more accurate than OPEC's, the IEA responded that the current year's demand decline amounted to a return to the growth rates observed prior to the pandemic and that the slowdown is already evident in data on oil deliveries.
"Mobility indicators suggest that road and air traffic are stabilising, so we expect this to continue this year," the IEA stated, adding that it was unable to comment on the projections made by other agencies.
When asked about the difference and whether it thought its projections were more realistic, OPEC stated that its 2.5 million barrel per day demand growth estimate for 2023 was only little less than its first July 2022 estimate.
"We have remained steadfast in our assessment of the oil demand until 2023. The Vienna secretariat of OPEC stated, "Many other forecasters began low and then continuously revised up their 2023 forecast," without making any mention of 2024.
Regarding the medium term, OPEC and the IEA are at odds as well. The IEA projects that as the world transitions to greener fuels, oil demand will peak by 2030. OPEC rejects the theory.
On Monday, OPEC restated its prediction that there won't be a peak until 2045, noting "pushback on some initial net-zero policies" and anticipated expansion outside the industrialised Organisation for Economic Co-operation and Development countries.
Since its founding 50 years ago as the energy watchdog for the industrialised world, the IEA has moved from promoting the security of the oil and gas supply to supporting renewable energy and climate action. This, in the eyes of certain OPEC members, compromises its objectivity.
"They have moved from being a forecaster and assessor of the market to one practising political advocacy," Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said last September.
Most IEA members consume large amounts of energy, and many of them have governments that have made the decision to quicken the pace at which renewable energy is developed in order to hasten the transition to a low-carbon economy.
Analysts claim that they are looking to their energy watchdog to provide guidance on how to get there. In contrast, members of OPEC that rely on the revenue from fossil fuels stand to lose greatly from a swift shift away from oil.
Based on historical performance, it is difficult to determine which of the two bodies' forecasts will be accurate because they are statistically tied in terms of forecast accuracy.
Twelve analysts out of 20 who responded to the topic of whether demand will peak by 2030 disagreed, indicating that OPEC is more likely to be correct on this point.
Predictions about oil consumption, like any economic estimates, are prone to change and can be influenced by a multitude of unforeseeable factors.
The difficulty is exacerbated by the slow release of data on actual oil consumption.
The IEA predicts that demand growth will half in 2024, in part due to a growing fleet of electric vehicles; nevertheless, as of January, the organisation had revised the demand growth projection upward for three consecutive months.
The founder of Energy Aspects, Amrita Sen, noted that both Atkinson and the IEA had a tendency to revise demand upward.
"I'd say the IEA's oil demand forecasts keep getting revised higher," Sen said. "Peak oil demand will likely be higher than the IEA forecasts."
According to reports, between 2008 and 2023, the IEA understated overall demand in its initial projection 56% of the time, whereas OPEC did so 50% of the time. This is not a significant difference.
Atkinson stated that while both organisations have correctly predicted changes in demand, he believed OPEC was more likely to be correct when it came to the demand peaking this decade, similar to Sen of Energy Aspects.
"At various times in history, the IEA and OPEC have both called it quite well," he stated. "I think the IEA are premature in calling for a demand peak by 2030 due to growth in developing countries."