The very first edition of the IEA’s benchmark Oil Market Report (OMR) was published 40 years ago, in September 1983. The international oil market complex has since grown exponentially. But then, as now, energy security concerns were critical. The IEA was created in response to the energy security challenges triggered by the 1973-1974 oil embargo when major producers pushed prices to historic levels. Launched to provide greater market transparency, the OMR has since become one of the world’s most authoritative sources for comprehensive analysis and timely statistics on oil market fundamentals, crucial to strengthening energy security globally.
Russia’s invasion of Ukraine in February 2022 upended oil and gas markets, creating the first truly global energy crisis amid the uneven economic recovery from the Covid-19 pandemic. Russia’s membership in the OPEC+ bloc has complicated efforts by the international community to navigate the crisis and address the major inflationary impacts of higher oil prices on economies around the world, especially in developing countries.
The Saudi-Russian alliance is proving a formidable challenge for oil markets. After oil prices traded in relative calm during August, with volatility at multi-year lows, the decision by Saudi Arabia and Russia in early September to extend output cuts of a combined 1.3 mb/d through year-end triggered a price spike in North Sea Dated above $90/bbl to a 10-month high. As forecast in this Report for some time, oil markets were already tightening and in August observed global inventories plunged by a sharp 76.3 mb, or 2.46 mb/d.
An expected rise in global oil demand of 1.5 mb/d in 2H23 over 1H23 levels will eclipse supply by 1.24 mb/d. Despite its difficult economic situation, China looks on track to account for 75% of the increase in world oil demand this year, or 1.6 mb/d of the 2.2 mb/d total. But global demand growth is set to slow sharply to around 1 mb/d in 2024 as the recovery runs out of steam and with efficiency gains, EV penetration and working from home further suppressing consumption.
Refiners are struggling to meet increased demand, especially for distillates. Surging product cracks and refinery margins near all-time highs have failed to spur a meaningful increase in throughputs. Sub-optimal crude allocations following embargoes on Russian crude and products and OPEC+ oil supply cuts have kept European and OECD Asian refinery runs well below year-earlier levels.
Output curbs by OPEC+ members of more than 2.5 mb/d since the start of 2023 have so far been offset by higher supplies from producers outside the alliance. Record US and Brazilian supply underpin a 1.9 mb/d increase in non-OPEC+ production from January to August, while Iran, still under sanctions, boosted output by around 600 kb/d. But from September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter. Unwinding cuts at the start of 2024 would shift the balance to a surplus. However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment.
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