oil demand growth will slow down significantly, and supply will increase

The growth in oil demand this year will slow down significantly, while supply, on the contrary, will grow due to countries that are not parties to the OPEC+ deal, according to the updated forecast of the International Energy Agency (IEA). Exports of Russian oil and petroleum products in December increased by 500 thousand barrels per day (b/d) – to 7.8 million b/d. This is the maximum since March, while income from the sale of energy resources, on the contrary, decreased against the backdrop of falling oil prices and increasing discounts for Russian supplies amid tightening controls over shipowners servicing exports from the Russian Federation. Yesterday, the US Treasury announced the imposition of sanctions against such a company from the UAE, which owns 18 ships.

The growth in global oil demand in 2024 will slow from 2.3 million b/d to 1.2 million b/d, follows from the January forecast International Energy Agency. The trend became noticeable at the end of last year: at the end of the fourth quarter, demand increased by 1.7 million b/d after an increase of 3.2 million b/d over the previous two quarters. The decline in oil consumption is affected by the general slowdown in global economic growth, the exhaustion of post-Covid recovery, as well as the growing popularity of electric vehicles and increased energy efficiency.

Oil supply this year, on the contrary, will exceed demand: over the year, supplies may increase by 1.5 million bpd, to 103.5 million bpd, the IEA expects. This increase will be almost entirely provided by supplies from the USA, Brazil, Guyana and Canada (last year, total oil supply increased by 1.9 million bpd, and non-OPEC+ production decreased by 390 thousand bpd, including Saudi Arabia – by 900 thousand bpd, Iran, on the contrary, increased supplies to the maximum in five years – the country is not subject to production restrictions.

Supplies from countries participating in the agreement are expected to remain unchanged.

The scenario provides for a gradual abandonment of part of the voluntary restrictions on production from the second quarter of 2024. Let us recall that at the end of 2023, OPEC+ countries agreed to introduce restrictions on production in the amount of 2.2 million b/d (including Saudi Arabia continued to adhere to a production reduction of 1 million b/d, Russia promised to expand the limit to 500 thousand b/d c), as a result, the actual production reduction in the first quarter could amount to 500 thousand bpd, which will keep the market in deficit. The rise in oil prices is also supported by Houthi attacks on ships in the Red Sea – in 2023, 10% of seaborne oil trade, or about 7.2 million bpd, and 8% of LNG supplies went through this route – a detour around the Cape of Good Hope extends supplies on average two weeks (and increases shipping and insurance costs).

Russian production in December remained almost unchanged, amounting to 9.48 million b/d versus 9.5 million b/d a month earlier (including condensates – 10.9 million b/d). On average, in 2023, production amounted to 10.96 million b/d, 130 thousand b/d less than a year earlier (exports of oil and petroleum products averaged 7.5 million b/d). In December, Russian supplies abroad increased by 500 thousand b/d to 7.8 million b/d (the maximum since March). Including crude oil supplies increased by 240 thousand b/d month-on-month, to 5 million b/d, exports of petroleum products increased by 260 thousand b/d.

The increase in supplies, however, did not compensate for the decline in energy prices at the end of the year, and revenue decreased by $1.4 billion – to a six-month low of $14.4 billion (in September-October the figure exceeded $18 billion).

The average price of exported oil from the Russian Federation in December decreased to $64.1 per barrel against $71.35 per barrel in November and $80.23 per barrel in October, not only due to a decrease in Brent prices, but also due to an increase in the discount on Russian raw materials (provided third of the price reduction).

Discounts began to grow following the increased attention of the US Treasury to carriers of Russian oil; yesterday the department announced the imposition of sanctions against Hennesea Holdings Limited, based in the UAE, which owns 18 vessels. The company is accused of participating in the trade of oil from the Russian Federation at prices above the ceiling of $60 per barrel.

According to Sofia Donets, chief economist for the Russian Federation and the CIS at Renaissance Capital, an increase in oil prices by $5 per barrel increases budget revenues by a little more than 1 trillion rubles. (the same effect is achieved by a change in the ruble/dollar exchange rate by 10 rubles) and, conversely, a drop in price by the same amount will mean the need to withdraw about 1 trillion rubles from the National Welfare Fund. The commodity situation still affects the ruble exchange rate, but with large lags, which, in turn, will restrain its strengthening, the economist expects.

Tatiana Edovina