OPEC vs IEA on Oil Demand Forecast - June 13

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What's Driving Oil Prices Today?
KEITH KOHL | JUN 13, 2024

Are oil prices today in the right spot?

Last week I told you that the market was wrong. The sharp selling took place after OPEC+ announced that it might start phasing out production cuts as early as October 2024 depending on market conditions.

Wall Street took that as a signal to run straight for the exits as WTI prices fell below $73 per barrel. In case you’re wondering, that’s what panic looks like, and it didn’t take long for prices to rally back to near $80 per barrel.

For us, it was an easy buying opportunity to spot, and now the question that should be on everyone’s mind is: Where’s it headed next?

Well, this week has turned me even more bullish down the back stretch of 2024.

Here’s why…

The Oil Price War Between OPEC and the IEA Rages On

For the past few years, a bitter battle has waged between OPEC and the IEA.

The two groups have been at odds over where oil is headed for as long as most of us can remember, with their war of projections being played out before us across the media stage — with the latest salvo launched by the IEA this week.

In its latest oil market outlook released yesterday, the IEA may have finally broken from reality. As usual, the report is about as bearish as one could get. However, you may notice quite a disconnect between the IEA’s projections and what we’re seeing around us today.

It was chock full of bearish surprises, from a supply surplus starting in 2025 to plateauing oil demand of around 106 million barrels per day by 2030:

Per IEA: Things are going to go so well that the world will achieve an unprecedented level of supply capacity of 113.8 million barrels per day over the next five or six years.

But wait, there’s more!

According to the IEA’s forecast, demand will only rise by another 3.2 million barrels per day between now and 2030 thanks to an accelerating transition of clean energy technologies. In fact, surging EV sales and increased efficiency will offset roughly 6 million barrels per day in fuel demand. < MY TAKE: Unless there is a MAJOR GLOBAL RECESSION or half of the world's population will happily accept a lower standard of living, oil demand will go up over a million bpd year-after-year. Copper shortages will make EVs too expensive for 95% of families.

That’s an interesting outlook given the slumping momentum in EV sales this year. Look around, and you’ll see that major automakers are starting to temper their aggressive EV goals. Earlier this year, Mercedes-Benz delayed its electrification by five years.

That’s not to mention the most recent tariffs that the U.S. and EU are slapping on Chinese EVs. President Biden imposed a 100% tariff rate on EVs last month, and yesterday we learned that the European Commission is placing tariffs on Chinese EV producers due to the unfair subsidization they receive.

Of course, we’re also assuming that the charging infrastructure will be in place for such drastic growth, too.

Don’t get me wrong, I’m not saying the EV transition won’t ever occur — it will! But it seems the IEA’s timeline is a bit more fantasy at this stage.

Meanwhile, it’s important to point out that the IEA (and our own EIA, too) has a dirty habit of revising their forecasts when it is painfully obvious they won’t come to fruition.

How many times have we seen the IEA revise its global oil demand forecasts to the upside? Personally, I’ve lost count.

I should probably mention that throughout it all, OPEC has stayed true to its demand growth projections of 2.2 million barrels per day in 2024. The oil cartel may have its own problems, but we can at least give it points for consistency.

It turns out that the IEA’s overly optimistic predictions are going to get the oil bears into a lot of trouble later this year, should a supply deficit emerge during the third and fourth quarters.

And right now, there’s only one place I’m looking to find value in U.S. oil stocks — we’ll dig into that next time.

Until next time,

Keith Kohl