The International Energy Agency (IEA), the Organisation of Petroleum Exporting Countries (OPEC) and the United States’s Energy Information Administration (EIA) have predicted a decline in global oil consumption this year, a development that is raising critical questions for Nigeria, Africa’s largest oil producer, about its preparedness.
The IEA in its outlook for 2024 said evidence of softening global oil demand is mounting and a slowdown is expected to continue this year.
The IEA said oil market sentiment had turned “decidedly bearish” in recent weeks, even after voluntary cut by some members of OPEC and non-OPEC oil-exporting allies — collectively known as OPEC+.
“Global markets adjusted to new trade dynamics, with crude oil from Russia finding destinations outside the EU, and global crude oil demand fell short of expectations. Those dynamics offset the impacts from OPEC+ crude oil supply curbs,” the EIA said in an analysis this month.
Last month, OPEC+ oil producers agreed to voluntary output cuts totalling about 2.2 million barrels per day for early next year led by Saudi Arabia rolling over its current voluntary cut to support the market.
OPEC+ is cutting some 6 million bpd from its output and its market share has fallen to 27 percent.
“From the demand side we do not expect much impetus in the months to come,” said Thomas Wybierek, analyst at NORD Landbk.
“There is still a question mark behind the supply side. There are a lot of doubts (on whether) the OPEC+ alliance will be capable to reduce supply as decided recently.”
Looking ahead, the IEA said oil consumption growth is projected to halve this year, falling to 1.1 million barrels per day as global economic growth stays below trend in major economies, and as Covid-19-related distortions fade.
Expected weak global economic growth would slow oil demand growth in 2024, keeping the average US benchmark oil price below $80 per barrel, according to the monthly Reuters poll in which analysts revised down their forecasts for 2024 from the previous month’s projections.
In the Energy Information Administration’s (EIA) latest oil market report (OMR), the organisation noted that world oil demand was on track to slowdown in 2024 but added that “this masks the impact of a further weakening of the macroeconomic climate”.
“The slowdown is set to continue in 2024, with global gains halving to 1.1 million barrels per day, as GDP growth stays below trend in major economies. Efficiency improvements and a booming electric vehicle fleet also drag on demand,” it added.
OPEC, the world’s biggest oil producer group, which has frequently clashed with the IEA in recent years over issues such as peak oil demand and the need for investment in new supplies, said that it remained “cautiously” about market dynamics in 2024.
For next year, OPEC said it sees world oil demand at 2.25 million barrels per day, unchanged from the previous month, but a sharply higher estimate than the IEA’s prediction of 1.1 million barrels per day for the period.
This slowdown could have significant implications for Nigeria, whose economy is heavily reliant on oil exports.
“A decline in demand could translate to lower oil prices and consequently, reduced government revenue. This could put pressure on the country’s budget and potentially lead to cuts in public services and infrastructure spending,” Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies said.
In the 2024 budget, the government has planned with the anticipation that oil will sell above $78 per barrel and Nigeria will produce at least 1.78 million barrels per day (bpd).