HIGHLIGHTS

• World oil demand is on track to rise 2.3 mb/d to 101.7 mb/d in 2023, but this masks the impact of a further weakening of the macroeconomic climate. Global 4Q23 demand growth has been revised down by almost 400 kb/d, with Europe making up more than half the decline. The slowdown is set to continue in 2024, with global gains halving to 1.1 mb/d, as GDP growth stays below trend in major economies. Efficiency improvements and a booming electric vehicle fleet also drag on demand.
• US oil supply growth continues to defy expectations, with output shattering the 20 mb/d mark. This, combined with record Brazilian and Guyanese production along with surging Iranian flows will lift world output by 1.8 mb/d to 101.9 mb/d in 2023. Non-OPEC+ will again drive global gains in 2024, projected at 1.2 mb/d after OPEC+ deepens its voluntary oil cuts.
• Russian crude export prices declined sharply in November, with Urals falling below the $60/bbl price cap on 6 December. The lower prices and a 200 kb/d drop in oil shipments pushed November export revenues for crude and products down 17% m-o-m to $15.2 billion, a level not seen since July 2023. Revenues fell more for crude (-$2.4 billion m-o-m) than products (-$800 million).
• Refinery margins in Europe and Singapore rebounded marginally in November, but the US Gulf Coast underperformed again, slipping for the third month running. Weaker diesel and gasoline cracks drove much of the US hub’s decline. Global crude runs in 4Q23 are expected to be materially weaker than previously estimated on deeper and longer refinery turnarounds, falling 3.6 mb/d m-o-m in October and only slowly recovering to a seasonal peak of 84.2 mb/d by December 2023.
• Global observed oil inventories declined by 19.6 mb in October. While crude oil inventories were largely unchanged, oil product stocks fell for the first time in four months, reversing the trend in 3Q23 when oil product stocks rose 1.3 mb/d, while crude drew 1.6 mb/d on average. OECD and non-OECD on-land stocks fell by 18.9 mb and 24.2 mb, respectively, while oil on water built by 23.5 mb.
• ICE Brent futures continued to fall in November, declining by $5/bbl to $83/bbl. Surging US crude exports and weaker global demand growth pressured the prompt crude price structure. The WTI contango deepened. Oil’s bearish drift continued in early December after the 30 November OPEC+ meeting failed to halt the price rout, with Brent prices about $25/bbl below September’s annual high.

Over a barrel

Oil market sentiment turned decidedly bearish in November and early December as non-OPEC+ supply strength coincided with slowing global oil demand growth. The extension of OPEC+ output cuts through 1Q24 did little to prop up oil prices. By early December, they had tumbled by about $25/bbl from September’s highs, to their lowest levels in six months. At the time of writing, Brent futures were trading around $74/bbl and WTI close to $69/bbl.  

Record-breaking supply from the United States, Brazil and Guyana, and sharply higher Iranian oil production, along with easing demand, prompted some OPEC+ members to announce more extensive 100 2 1Q24 cuts to fend off a potential inventory build. Improved drilling efficiencies and 95 0 well productivity in the shale patch saw US oil supply exceed 20 mb/d in September, defying industry warnings of an imminent slowdown in growth due to cost inflation and oil field service capacity constraints. As a result, upward revisions to US 2H23 supply are set to total close to 600 kb/d since our June Report. The United States is now on track to deliver a supply increase of 1.4 mb/d in 2023, accounting for two-thirds of the 2.2 mb/d non-OPEC+ expansion. At the same time, OPEC+ will post a 400 kb/d decline, cutting its market share to 51% in 2023 – the lowest since the bloc’s creation in 2016. Hefty supply cuts, largely shouldered by Saudi Arabia, have been tempered by Iranian production at five-year highs. While non-OPEC+ supply growth is set to lose momentum in 2024, forecast gains of 1.2 mb/d may yet exceed the increase in global oil demand. 

Evidence of a slowdown in oil demand is mounting, with the pace of expansion set to ease from 2.8 mb/d y-o-y in 3Q23 to 1.9 mb/d in 4Q23. A deterioration in the macroeconomic outlook led to a downward revision in our global oil consumption growth forecast of nearly 400 kb/d in the final three months of the year. Europe, Russia and the Middle East account for most of the adjustment. The impact of higher interest rates is feeding through to the real economy while petrochemical activity shifts increasingly to China, undermining growth elsewhere. Europe is particularly soft amid the continent’s broad manufacturing and industrial slump. In addition, tighter efficiency standards and an expanding electric vehicle fleet continue to curb oil use. As a result, world oil demand growth in 2023 has been adjusted lower by 90 kb/d from last month’s Report to 2.3 mb/d. China accounts for 78% of this year’s increase. Oil consumption growth is expected to ease significantly in 2024, to 1.1 mb/d, with demand baselines normalising as Covid-related distortions fade.  

The shift in global oil supply from key producers in the Middle East to the United States and other Atlantic Basin countries, and the dominant impact of China and its booming petrochemical sector on oil demand, are profoundly impacting global oil trade. East of Suez markets have already absorbed the majority of Russian flows following the invasion of Ukraine as well as rising Iranian exports, but now must adjust to increasing volumes of Atlantic Basin crude and NGLs. The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices.