Last month, we put forward the view that the situation in the Middle East would not result in any meaningful disruption to the volumes of crude exports. So far, this view has aligned with reality, even though the conflict in the Middle East (as well as the conflict between Russia and Ukraine) remains unresolved.

Consequently, the risk premium associated with geopolitics has decreased and the supply/demand fundamentals are taking a more prominent role in shaping market sentiment. This shift has resulting in oil prices falling back to levels consistent with our forecast that the price of Brent crude will be between $86/bbl and $88/bbl during the second half of this year.

Recent economic data is consistent with oil demand growth during 2024 being moderate (we are currently forecasting that oil demand will increase this year by 1.41 MMbbl/d in comparison to 2024).

The U.S. economy grew by only 1.6% on an annual basis for the first quarter, which is significantly less than during the fourth quarter of last year when the U.S. economy grew at an annual rate of 3.4%. It is also the lowest quarterly growth since second-quarter 2022. While consumer spending held up reasonably well (2.5% growth in the quarter in comparison to 3.3% in fourth-quarter 2023), the position of consumers is weakening.

According to the U.S. Bureau of Economic Analysis, the personal savings rate decreased to 3.2% in March and is heading to the lowest levels since 2007. In comparison, during the period from 2010 through 2019, the personal savings rate averaged above 5%. Concurrently, credit card debt is at all-time highs and continuing to increase (by $143 billion in the fourth quarter) at the same time that consumer delinquencies are increasing.

While the headline unemployment number is still low, a better indication of current state of the labor market is the underemployment rate (including discouraged workers and part-time workers who desire to have full-time jobs) which increased to 7.4%, the highest level since November 2021.

In contrast to geopolitics and oil demand, we are forecasting that oil supply will help stabilize oil prices during the second half of the year with the expectation that OPEC+ will maintain its production cuts, while non-OPEC supply will increase by only 1.19 MMbbl/d.

Looking beyond this year

While the oil industry is dealing with volatility in the short term, it will need to deal with structural changes in the coming years. In our reference scenario, we forecast global oil demand will continue to increase through 2035, but demand will be lower in 2050 than in 2035.

While global oil demand is forecasted to increase through 2035, there will be a substantial shift from mature OECD economies to developing non-OECD economies.

While product demand in OECD countries is forecasted to decrease during the period of 2023 through 2035, product demand in non-OECD countries is forecasted to increase by more than 9 MMbbl/d. Asia will represent the bulk of the demand growth, but there will also be growth in Latin America, Africa and the Middle East.

The increasing importance of non-OECD countries with respect to demand for oil products is driven, in part, by the forecasted growth of the vehicle fleet in non-OECD countries. During the period between 2023 and 2035, the size of the vehicle fleet in non-OECD countries will exceed the size of the vehicle fleet in OECD countries.

While there are uncertainties about the forecasts, there is little uncertainty about the general direction of the forecasted shifts. The shifts will result in changing trade flows—with respect to crude oil, as well as oil products—which will require exporters and importers to address their supply chains. Additionally, the shifts will result in the expansion of linkages between geographic regions, including linkages of North America with the rest of the world.