According to the International Energy Agency (IEA), a more optimistic economic outlook in the United States and rising fuel demands of vessels rerouted from the Red Sea in response to assaults by Yemen’s Houthi rebels are expected to drive global oil demand higher than anticipated.
The Paris-based agency revised its monthly oil report published on Thursday, increasing global oil demand by 110,000 barrels per day (bpd) compared to its previous estimate due to supply disruptions caused by Houthi attacks in the Red Sea, which are aligned with Iran.
According to the IEA, global oil demand is expected to rise by 1.3 million bpd this year.
“In the wake of unrest in the Red Sea, disruptions to international trade routes are increasing bunker demand by increasing vessel speeds and lengthening shipping distances,” the agency said, using a term for the fuel requirements of ships.
Since mid-November, in response to Israel’s invasion of Gaza, the Houthis have launched drones and missiles on multiple occasions at international commercial shipping. This has caused significant disruption to worldwide trade along a route that carries approximately 15 percent of the world’s shipping traffic, compelling companies to reconsider and incur greater costs by rerouting their cargo around Southern Africa.
According to the IEA, nearly 1.9 billion barrels of oil were at sea at the end of last month due to the disruptions; this is nearly the highest level since the COVID-19 pandemic.
Fuel demand increased due to longer routes, and ship cargo in Singapore reached an all-time high.
Although shipping disruptions provide a short-term lift, the agency cautions that demand will be negatively impacted by the resolution of post-pandemic unrest and a bleak economic outlook.
“The global economic slowdown, improving vehicle efficiencies, and expanding electric vehicle fleets all contribute to an additional headwind to oil consumption,” the report stated.
“Despite the gradual decline of China’s dominance, growth will remain significantly impacted in favor of countries not affiliated with the Organization for Economic Co-operation and Development (OECD).” The IEA projects that the latter’s oil demand will increase slowly from 1.7 million bpd in 2023 to 620,000 bpd in 2024.
The yearly increase in demand has remained considerably diminished since 2023, when it surged to 2.3 million bpd, owing to advancements in energy efficiency and the increased adoption of electric vehicles.
Total demand is anticipated to increase from 101.8 million bpd in 2019 to 103.2 million bpd in 2024.
If OPEC+ continues to implement voluntary reductions until 2024, the IEA projects a marginal deficit rather than a surplus in the market. Furthermore, it indicates that oil prices will likely fluctuate in early March, following the market’s reaction to the previous cut announcement.
The IEA added that oil supply growth from non-OPEC+ countries will continue to outpace oil demand expansion by a significant margin.
On Thursday, oil prices extended their gains in response to the report.
At 10:21 GMT, Brent crude futures LCOc1 for May increased by 72 cents, or 0.86 percent, to $84.75 per barrel. In April, the price of US West Texas Intermediate (WTI) crude increased by 83 cents, or 1.04 percent, to $80.55.
“Although the IEA’s assessment of the global oil balance remains over a country mile from OPEC’s forecast, this report does not dampen the growing optimism,” said PVM Oil Associates analyst Tamas Varga.
