OPEC+ Slashes Oil Demand Forecast For 2024 & 2025 Amid Middle East Tensions, Crude Oil Prices Fall

The Organization of the Petroleum Exporting Countries and its allies, including Russia (OPEC+), have cut their forecast for global oil demand growth in both 2024 and 2025, marking the group's third consecutive monthly downward revision. This reflects a slowdown in global fuel consumption and mounting economic challenges, particularly in China. The revised forecast is outlined in OPEC's latest monthly report.

In its October report, OPEC adjusted its 2024 oil demand growth forecast to 1.93 million barrels per day (bpd), a reduction of 1,06,000 bpd from last month's estimate of 2.03 million bpd. Despite the downgrade, OPEC noted that the 2024 growth figure remains above the historical average of 1.4 million bpd seen before the COVID-19 pandemic disrupted global oil consumption patterns.

A key driver of the downgrade is China, where economic headwinds and a push toward cleaner energy sources are expected to dampen crude oil demand. OPEC revised its forecast for China's 2024 oil demand growth to 5,80,000 bpd, down from 6,50,000 bpd in its previous estimate. Although government stimulus measures are anticipated to support fourth-quarter demand, the long-term outlook remains clouded by China's ongoing economic challenges and its transition to greener fuels.

For 2025, OPEC cut its global oil demand growth estimate from 1.74 million bpd to 1.64 million bpd. Until August, OPEC had maintained this projection, which was first made in July 2023. The revision reflects broader uncertainties over the global energy landscape, particularly the pace of the world's shift to cleaner energy sources. Forecasters are divided on how quickly demand will grow in 2024, with much of the discrepancy rooted in differing views on China's economic trajectory and energy transition.

OPEC remains at the top of the industry's estimates, but its projections contrast with the International Energy Agency (IEA)'s more conservative outlook.

OPEC has implemented a series of output cuts since late 2022 to stabilize the oil market, with most of these reductions expected to remain in place until the end of 2025. Initially, the group planned to unwind some of its most recent cuts-totalling 2.2 million bpd-beginning in October. However, following a decline in oil prices, OPEC decided to delay this move for two months.

Crude prices have recently been supported by rising tensions in the Middle East, yet the current level of $77 per barrel is still too low for some OPEC members. Efforts to prop up prices have been hampered by countries that have not fully complied with their production cut commitments, particularly Iraq, Kazakhstan, and Russia. According to OPEC's report, these three nations exceeded their production quotas, undermining the cartel's efforts to control supply and support prices.

OPEC's October report revealed that the group's total output in September fell to 40.1 million bpd, a decline of 5,57,000 bpd from August. The decrease was largely attributed to unrest in Libya and reduced production in Iraq, which pumped 4.11 million bpd-still above its quota of 4 million bpd but down by 1,55,000 bpd from the previous month. Meanwhile, Kazakhstan increased its output by 75,000 bpd to 1.545 million bpd, flouting its earlier statement to reduce production. Russia also cut its output by 28,000 bpd, but like Iraq and Kazakhstan, remained above its production ceiling.

Despite the production cuts, OPEC projected demand for its crude oil at 43.7 million bpd in the fourth quarter, suggesting room for higher production levels in the coming months. OPEC+ is expected to decide on its December output hike in the coming weeks, with the alliance set to restore 2.2 million bpd in monthly increments starting from December-two months later than initially planned.

In response to OPEC's latest downward revision of its demand growth outlook, oil prices dropped by 2% on Monday. Brent crude futures settled $1.58 lower at $77.46 per barrel, while US West Texas Intermediate (WTI) crude futures fell $1.73 to $73.83 per barrel. The decline comes after both benchmarks posted gains last week, with Brent rising by 99 cents and WTI climbing $1.18.

China's declining crude oil imports contributed to the price drop. Data showed that China's crude imports for the first nine months of 2024 fell by nearly 3% compared to the same period last year, a decline attributed to the growing adoption of electric vehicles (EVs) and slowing economic growth following the pandemic. The lower Chinese demand overshadowed concerns about potential disruptions to oil production in the Middle East, where geopolitical tensions remain high.

While the oil market continues to be influenced by OPEC's policy decisions, geopolitical risks remain a key factor. Investors are monitoring the situation in the Middle East, particularly the possibility of Israeli retaliation against Iran for the October 1 missile attack. Additionally, the US has announced plans to send troops to Israel and deploy advanced anti-missile systems.

The strengthening US Dollar, which hit a nine-week high on Monday, has also weighed on oil prices. A firmer dollar tends to reduce demand for oil priced in the US currency from buyers using other currencies, adding to the downward pressure on crude prices.