Global oil supply did not follow demand upwards in the second half of 2023 as Russia and Saudi Arabia stuck to self-imposed production and export cuts. As a result, global oil inventories were drawn down and transportation demand did not grow. However, the International Energy Agency (IEA) expects supply to outpace demand in the first half of 2024 and we forecast that the need to refill inventories will result in solid growth in transportation demand. China remains the key driver of oil demand growth and the IEA estimates that China has contributed 1.8 mbpd of the 2.4 mbpd that oil demand has grown in 2023. The IEA predicts that global oil demand will grow a further 0.9 mbpd in 2024 to end at 102.9 mbpd, and that Chinese demand will contribute 0.6 mbd of that growth.
Oil demand
Oil demand in the Americas grew 1.1% in 2023 but is expected to fall 0.6% in 2024. Like Europe, it appears that the region has reached peak oil. In Europe, demand fell an estimated 0.7% in 2023 and is forecast to fall another 0.5% in 2024. Only the Middle East joins the Asia Pacific region in showing demand growth during both 2023 and 2024.
Jet fuel has seen the biggest demand growth in 2023 but naphtha is expected to be the key driver in 2024. This highlights the expected future demand pattern for oil where demand for fuel will stop growing and eventually fall, while demand for petrochemicals is expected to continue to grow.
Neither the IEA nor the US Energy Information Agency (EIA) have released demand predictions for 2025. In our forecasts we have assumed that growth will slow further and end around 0.5%.
On the supply side, North and Latin America remain the key areas for growth whereas the IEA expects supply from the Middle East to fall. Biofuels are expected to be the second largest contributor to increased supply.
Oil supply
Demand growing in Asia Pacific while supply is growing in the Americas causes the market imbalances to increase. This in turn leads to growing transportation volumes and longer sailing distances. In essence, as the market imbalance grows faster than global supply and demand, then crude tanker volumes will also grow faster. As long as the number of transits through the Panama Canal remains constrained, this will further add to increased sailing distances.
Product tankers are also impacted by a shift in trades as refinery capacity and throughput is forecast to grow in Asia Pacific, Middle East, and Africa but fall in Europe and the Americas. This is likely to increase volumes traded between regions while also increasing average sailing distances and benefit product tankers.
Refinery
The changes in both crude and product tanker flows will naturally come on top the significant changes that the G7-led sanctions on Russian oil and oil products exports have led to. We assume that those sanctions will remain in place throughout 2024 and 2025 but should they be fully or partly lifted it could lead to lower sailing distances and lower tonne miles demand.
Oil prices
Oil prices increased as the production cuts by Saudi Arabia and Russia took hold but have since fallen back on worries about demand in China. The EIA predicts that prices will again move upwards in the first quarter of 2024 and Brent is expected to average USD 93/barrel during the year. There is a risk that this could hurt demand, but we judge that the impact on our demand forecasts would be minor.
According to the International Monetary Fund (IMF), the world economy is expected to grow by 3.0% in 2023, down from 3.5% in 2022. The European Union’s economy only grew 0.7% in 2023 because of high inflation, higher interest rates and the war in Ukraine. In particular, the economy in Germany suffered and is expected to end 2023 with negative growth of 0.5%.
GDP growth
The IMF has forecast that global growth will slow further to 2.9% in 2024 but recover to 3.2% in 2025.
The US is expected to suffer the consequences of the high interest rates, while the real estate sector remains a concern in China. Given recent positive data and actions by the Chinese government aimed at the real estate sector, there is a chance that Chinese growth could end 0.4 percentage points higher in both 2023 and 2024. India meanwhile is still expected to be the fastest growing major economy.
Risks to global economic growth remain, however, the IMF forecasts that they are both smaller and less likely to come true than in previous forecasts.
For crude and product tanker demand, the main risks are considered to be an extension of production cuts by Saudi Arabia and Russia, significant price increases hurting demand, and a reversal of sanctions on Russian exports.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe
Source : Bimco
