IEA expects global oil demand growth to be bullish in 2004

The latest Oil Market Report from the International Energy Agency includes projections for 2004 global oil demand and supply from countries outside the Organization of Petroleum Exporting Countries.

July 17, 2003

3 min read

Marilyn Radler
Economics Editor

HOUSTON, July 17 -- The latest Oil Market Report from the International Energy Agency includes projections for 2004 global oil demand and supply from countries outside the Organization of Petroleum Exporting Countries. These initial estimates peg demand growth at 1 million b/d and non-OPEC supply plus OPEC NGL growth at 1.74 million b/d.

Demand growth
Although this rate of demand growth is equal to that projected for this year—when the global economy is still struggling—IEA cites several reasons as to why the 2004 figure is more bullish than it seems. For instance, 2003 oil demand growth was boosted by a number of factors related to fuel switching. Nuclear plant outages in Japan forced substitution to oil, and in the US high natural gas prices led to additional fuel switching.

Further, the Paris-based agency said that precautionary stock building in countries outside the Organization for Economic Cooperation and Development in advance of the war in Iraq and colder-then-normal weather contributed to higher oil demand growth this year.

"Without these developments, 2003 oil demand growth would have been much lower, certainly less than 500,000 b/d. Consequently, removing these exceptional factors implies a much stronger year-on-year oil demand growth in 2004 and represents a significant step forward," the report said.

The 2004 demand growth estimate assumes a return to normal weather, a phased global economic recovery, lower average oil and gas prices, and the return to service of the Japanese nuclear reactors.

IEA expects oil demand in 2004 to grow faster where economic growth is more pronounced. The US will lead not only the global economic recovery but also oil demand growth with a 340,000 b/d increase, according to IEA projections. Among non-OECD countries, China will show the biggest gain in oil demand at 260,000 b/d.

Non-OPEC supply
The result of the projections for 2004 demand growth and the increase in non-OPEC supply is a 700,000 b/d reduction in the call on OPEC plus stock change figure. This would be the fifth consecutive year of contraction.

Iraq likely will export much more oil next year and Nigeria and Algeria are each adding oil production capacity of more than 500,000 b/d. They are on record requesting a higher quota allocation to accommodate this increase.

With OPEC currently producing more than 25 million b/d, a big challenge for the organization will come during the second quarter of next year when the call drops to 23.25 million b/d, according to IEA estimates.

Marking the third straight year of more than 1 million b/d growth, non-OPEC oil supply is forecast to increase by 1.32 million b/d next year following growth of 1.11 million b/d this year.

Production in mature areas, such as the North Sea, Russia, and North America, will be sustained as ongoing drilling, workovers, and maintenance outpace natural decline rates in those areas. Deepwater production in the US Gulf of Mexico, the North Sea, Latin America, and West Africa will increase in 2004.

Although constrained by export capacity, Russian output will move up as well. In total, IEA said, the former Soviet Union will account for 46% of non-OPEC supply growth next year, primarily with increases in Russia and Kazakhstan.

Contact Marilyn Radler at [email protected].