IEA and OPEC differ in their forecasts for oil in the future

The Organisation of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), both closely monitoring global oil demand trends, are more divided on the fuel market than they have been in at least 16 years. Reuters reported this calculation.
OPEC predicts that oil consumption will continue to rise over the next two decades, while the IEA predicts that it will peak by 2030 as the world transitions to cleaner energy sources.

Although forecasts differ for the coming periods, this is no secret for market participants. The IEA is accused of favouring the interests of countries and companies that sponsor the green transition and invest huge amounts of money in it, while OPEC looks ahead through the eyes of oil producers.
In February of this year, the IEA predicted a demand growth of 1.22 million barrels per day in 2024, while OPEC expected 2.25 million barrels per day in their February report. An analysis of monthly reports from the IEA and OPEC over a 16-year period showed that the difference in forecasts, at 1.03 million barrels per day, was the largest during this time.

When asked about the discrepancy between the IEA and OPEC's 2024 forecasts and whether the IEA's forecasts are more accurate, the IEA stated that the current demand slowdown is a return to pre-pandemic trends. This slowdown is already evident in oil supply data. The IEA declined to comment on the OPEC forecast.

When asked to comment on the gap and the accuracy of its forecasts, OPEC stated that its 2023 demand growth forecast of 2.5 million bpd was only slightly lower than its original July 2022 figure. The OPEC secretariat in Vienna also mentioned that they have been consistent in their 2023 oil demand forecast, unlike other forecasters who started with lower figures and continually raised their forecast for 2023. The OPEC secretariat in Vienna also mentioned that they have been consistent in their 2023 oil demand forecast, unlike other forecasters who started with lower figures and continually raised their forecast for 2023. The OPEC secretariat in Vienna also mentioned that they have been consistent in their 2023 oil demand forecast, unlike other forecasters who started with lower figures and continually raised their forecast for 2023. However, OPEC did not provide any comments on the 2024 forecast.
On Monday, the Organization of Petroleum Exporting Countries confirmed its forecast that oil demand is not expected to peak until 2045, after which it will decline. OPEC cited the anticipated growth in oil demand outside the circle of industrialized countries of the Organization for Economic Cooperation and Development (OECD) to support its claim.

The International Energy Agency (IEA) was established by the United States in response to the 1973 oil crisis as a counterbalance to OPEC, although it initially held observer status. However, the IEA has since shifted its focus from ensuring stability in oil and gas supplies to promoting renewable energy sources and combating climate change. Some OPEC members view this as a threat to the IEA's impartiality. “They have evolved from market forecasters and evaluators to political propagandists,” said Saudi Energy Minister Prince Abdulaziz bin Salman in September.

According to Reuters, this situation means that investors are receiving conflicting signals about the oil market.
Why was there such a significant difference in the forecasted oil prices over the past 16 years? According to Nikolai Vavilov, a specialist in the strategic research department at Total Research, the answer is clear. The IEA has long been a mouthpiece in the foreign information space, shaping public opinion on certain issues to align with the interests of the United States. Over the past two years, the Biden administration has ordered the expenditure of almost half of the US strategic oil reserves to maintain domestic gasoline prices. The upcoming US presidential elections may have influenced this decision.

This has resulted in the need for replenishment of the reserves. It is widely acknowledged that oil is the lifeblood of the modern economy, and its price forms the basis of the cost chain for producers of any product. Forecasts from the IEA aim to reduce global demand and theoretically push for a price reduction, but this may not be entirely correct in the current geopolitical situation. According to Nikolai Vavilov, only OPEC forecasts should be relied upon for making important decisions on future investment strategies related to oil. This is because they are based on more market information from real participants in the countries that are members of this union.

Mikhail Smirnov, portfolio manager for global markets and deputy director for investments and management at General Invest, notes that the IEA and OPEC share a similar vision, despite differing projected volumes. Both organizations anticipate that non-OECD countries and regions, particularly China, India, Brazil, and Latin America, will be the primary driver of oil demand in 2024. The growth volumes expected by the two organizations differ. While OPEC expects only countries outside the OECD to provide an additional demand of 2 million barrels per day by 2024, the IEA expects the entire global increase in demand in 2024 to be only 1.22 million bbl/day.
What is the cause of this discrepancy? The analyst suggests that it may be due to the political interests of these organizations. The IEA mainly represents developed countries and predicts a significant and gradual decline in global oil demand by 2025, driven by a green agenda and a relatively rapid transition to renewable energy sources. However, according to OPEC forecasts, the transition to green energy is not expected to happen rapidly. Additionally, due to their close political ties with OPEC, the economies of China and India are expected to drive a significant surge in oil demand this year.

“We do not undertake to predict the distant future, but assume the truth is somewhere in the middle. We do not expect rapid growth in developing countries' economies as OPEC forecasts may imply because macroeconomic indicators from China are getting worse. We also do not expect a significant increase in oil production in 2024,” says Mikhail Smirnov.

Therefore, he highlights that if North America was the main driver of growth in 2023, the USA will have limited capacity to increase production without substantial investments in 2024. The stock of drilled but uncompleted wells in the US, which could be a cheap source of production, has fallen to its lowest level since 2014 at 4,386. The number of active drilling rigs, as well as shale oil complexes, reached a local peak in early 2023 and has been steadily declining since then.

Against this backdrop, Mikhail Smirnov anticipates that in the absence of a global recession, the balance of oil supply and demand in 2024 could shift towards a moderate deficit, even without the high demand predicted by OPEC. In the short term, the oil market will depend on OPEC as the organization with the highest amount of free capacity. Whether the leaders of the organization, the Saudis, want to increase production is a different matter.