This blog post is part of a special series based on the April 2024 edition of the Commodity Markets Outlook, a flagship report published by the World Bank. This series features concise summaries of commodity-specific sections extracted from the report. Explore the full report here.
Brent crude oil prices eased to $78 per barrel (bbl) in early June, down from over $90/bbl in April, due to subdued oil demand, increased global inventories, and easing of geopolitical risks. Over the past six months, prices have been volatile, influenced by heightened geopolitical tensions, OPEC+ production cuts, and some signs of firming global industrial activity. Oil prices are projected to average $84 per barrel in 2024, slightly up from $83/bbl in 2023, before declining to $79/bbl in 2025. Potential risks to the outlook include escalation of conflicts, lower-than-expected oil supply in North America, and weaker-than-expected global GDP growth.
Global oil demand growth is losing momentum, reflecting challenges in the global macroeconomic environment, particularly the growth slowdown in China. Approximately three-fourths of global consumption growth in 2024 is expected to come from five countries (Brazil, China, India, Indonesia, and Saudi Arabia), while consumption in advanced economies is expected to be marginally lower. Global oil demand growth is forecast to increase modestly in 2025. Demand for LPG, ethane, and naptha is anticipated to remain robust, fueled by China's expanding investments in the petrochemical industry and India's government initiatives promoting clean cooking policies.
Global oil supply is set to reach a record high in 2024, led by non-OPEC+ producers. Supply is expected to increase by 0.6 mb/d in 2024, bringing global output to a record high of around 103 mb/d. This increase is fueled by resilient non-OPEC+ production, despite significant setbacks in the first quarter of 2024 due to weather-related disruptions in North America. The United States is anticipated to maintain its position as the largest contributor to global supply growth, accounting for almost half of non-OPEC+ supply increases in 2024 and 2025. Output is expected to remain robust in Brazil, Canada and Guyana. In contrast, OPEC+ production is forecast to decline in 2024, following the recent decision to extend 3.66 mb/d cuts until the end of 2025 (the cuts were introduced in August 2023). However, OPEC+ production will increase in 2025 due a gradual phase-out of 2.2 mb/d cuts over one year starting in October 2024. This is expected to result in supply outpacing demand and a buildup in inventories.
The outlook is subjected to several risks. First, intensifying geopolitical tensions could disrupt supplies. The potential for a broader conflict in the Middle East remains a significant threat to oil prices, especially following the sharp increase in tensions in mid-April. Recently, the geopolitical tensions in Iran, OPEC’s third largest producer, raised concerns, although these have somewhat de-escalated. Earlier this year, aggression towards ships in the Red Sea led to substantial rerouting of oil tankers, adding a new dimension to geopolitical challenges. Additionally, assaults on refining facilities in Russia heighten concerns about unforeseen events stemming from the Russia-Ukraine war, potentially increasing volatility in the oil market.
Second, there is a risk of lower-than-expected oil supply in North America. The forecast anticipates a 0.6 mb/d increase in U.S. oil production in 2024. However, rising costs, record-high but stagnating production, and a declining number of active wells and drilled-but-not-completed wells could significantly challenge this projection. A smaller-than-expected increase could lead to significant shortages, especially while OPEC+ cuts remain in effect, thus requiring higher output growth from other major non-OPEC+ producers.
Third, weaker-than-expected global economic growth could exert downward pressure on oil prices. The forecast assumes slow but steady global economic growth. However, financial stress, persistently above-target inflation, and a further weakening outlook of China’s economy present major challenges to this outlook. Additionally, tighter-than-anticipated monetary policies in response to persistent inflation could dampen global growth and lower oil demand.
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