IEA Adjusts 2024 and 2025 Oil Demand Forecasts: Key Factors and Geopolitical Risks

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Reasons for IEA's Adjustments to 2024 and 2025 Oil Demand Forecasts

2024 Oil Demand Forecast Reasons

1. Stabilization in Air Traffic and Fuel Efficiency Improvements:
   • The increase in demand for jet fuel/kerosene in 2024 is forecast to be smaller at 230 kb/d due to stabilization in air traffic and significant gains in fuel efficiency of aircraft since 2019. Despite roughly equivalent air travel activity, fuel demand from the sector was more than 6% lower in the second half of 2023 compared to the same period in 2019. This trend is expected to continue as more new planes with improved fuel economy enter the global fleet.
2. Decline in Oil Demand Growth in China:
   • China's oil demand growth is slowing, which is expected to persist and could impact global market dynamics. This decline is attributed to increased use of electric vehicles (EVs), emerging clean energy technologies, and more expansive efficiency policies in China.
3. Economic Growth Projections:
   • The economic growth outlook for 2024 and 2025 remains uncertain, with the OECD and IMF projecting steady growth at 3.21% and 3.2%, respectively, while the World Bank offers a more cautious outlook at 2.7%. Economic growth is closely aligned with oil demand, and any slowdown in economic activity could exert downward pressure on oil demand.

2025 Oil Demand Projections Factors

1. Continued Impact of EVs and Clean Energy Technologies:
   • The rapid gains in the market share of EVs, particularly in China, and steady improvements in vehicle fuel economies are expected to generate an overall peak in oil demand by the turn of the decade. This trend is set to continue, with efforts by Middle Eastern economies, especially Saudi Arabia, to reduce the quantity of oil used in power generation further restraining oil demand growth.
2. Geopolitical Tensions and Supply Risks:
   • Intensifying geopolitical tensions, such as those in the Middle East and potential conflicts involving Iran, could disrupt oil supplies and increase volatility in oil prices. These tensions pose significant risks to the stability of oil markets and could influence demand projections.
3. Economic Growth and Monetary Policies:
   • Weaker-than-expected global economic growth and tighter-than-anticipated monetary policies in response to persistent inflation could dampen global growth and lower oil demand. Financial stress and a further weakening outlook for China’s economy present major challenges to the forecast of steady global economic growth.

Geopolitical Impact on Oil Demand 2024-2025

1. Middle East Tensions:
   • Broader military conflicts in both the Middle East and Europe could significantly impact oil prices and supply chains. Recent stock market corrections and the uncertain outcome of US elections on energy and climate policy further cloud market stability.
2. US-China Relations:
   • Tensions between the US and China, particularly in the context of trade and technology, could also affect global oil demand. These geopolitical dynamics can influence economic growth and subsequently impact oil consumption patterns.
3. Russia-Ukraine Conflict:
   • The ongoing conflict in Ukraine and its implications for global energy markets remain a significant risk. Any escalation or de-escalation in this conflict can have profound effects on oil prices and supply stability.

In summary, the IEA's adjustments to its 2024 and 2025 oil demand forecasts are influenced by stabilization in air traffic, improvements in fuel efficiency, declining demand growth in China, uncertain economic growth projections, and significant geopolitical risks. These factors collectively shape the outlook for global oil demand in the coming years.