The current conflict in Israel and escalating tensions across the Middle East are causing concerns for the global oil market. As per the International Energy Agency (IEA), the demand for crude oil is projected to reach a new record high in 2023.
Geopolitical Tensions on the Rise
According to the IEA’s monthly report, the Paris-based organization is highlighting the significant rise in geopolitical tensions in the Middle East, which is creating unease in the markets. The region is responsible for about one-third of sea-borne oil trade.
“Although there has been no immediate impact on physical supply, the unfolding crisis will keep markets on edge,” stated the IEA on Thursday.
Surging Crude Oil Prices
This week, Brent crude prices surged past $90 a barrel after Hamas launched a surprise attack on Israel over the weekend. While Israel and the Palestinian territories do not play a major role in oil production, analysts fear that any spillover effects from the conflict could potentially disrupt supply from major producers in the region, including Iran.
This risk compounds with the tightening supply from the Organization of the Petroleum Exporting Countries (OPEC).
“The international community, amidst already tightly balanced oil markets predicted by the IEA, will continue to closely monitor potential risks to oil flows in the region,” emphasized the agency.
Record High Oil Demand
The IEA’s latest report indicates that oil demand is expected to increase by 2.3 million barrels per day this year, surpassing last month’s estimate by 100,000 barrels per day. Consequently, total demand is projected to average 101.9 million barrels per day, setting a new record.
China’s robust demand growth is cited as a significant factor contributing to this upward trend.
Global Oil Demand Forecast Lowered for 2024
In a recent report, the International Energy Agency (IEA) has lowered its forecast for global oil demand growth in 2024. The agency now predicts that total demand will average 102.7 million barrels a day, citing a weakening economic rebound from Covid-19 lockdowns as the main reason for the revision.
Supply Outlook remains Unchanged
Despite revising the demand forecast, the IEA has kept its outlook for supply unchanged. It expects output to continue growing this year, by 1.5 million barrels a day, reaching an average of 101.6 million barrels a day. Furthermore, next year’s supply is projected to rise by 1.7 million barrels a day, reaching an average of 103.3 million barrels a day.
Market Faces Deficit amidst OPEC Cuts
The IEA highlights that the market is likely to experience a significant deficit for the rest of the year due to Saudi-led oil cuts by OPEC. Additionally, global crude stocks have fallen to their lowest level since 2017, underscoring the tightness in the market.
Inflationary Concerns and Monetary Policy
The rising oil prices have sparked concerns about inflation, especially with gasoline prices in the U.S. currently at $4 per gallon. The IEA warns that this could lead to further monetary tightening, including the possibility of keeping interest rates high for a longer period. Such actions could potentially push the already fragile global economy into stagflation.
Russian and Iranian Oil Revenues Benefit from Rising Prices
According to the IEA, Russian oil revenues reached nearly $19 billion in September, driven by the upward trajectory in oil prices. Other oil-producing countries, including Iran, are also benefitting from the increasing prices.
