The National Energy Agency, known for its comprehensive market assessments, recently revised its demand projections downward for oil this year and particularly for 2023. The decision by OPEC and its partners, notably Russia, to scale back production has implications that ripple across economies worldwide, including Canada and the United States. Analysts warn that sustained price pressures could weigh on global growth, even as energy markets adjust to new supply realities.
In its latest monthly oil market report, the agency notes a notable reduction in global demand as a consequence of the OPEC+ strategy. With a cut in output amounting to roughly two million barrels per day as of November, this represents about two percent of worldwide supply, a move that has coincided with a rise in crude prices of roughly fourteen dollars per barrel since September levels.
Persistent inflation and higher interest rates intensify concerns that elevated oil prices could become a tipping point for economies already facing headwinds. The agency emphasizes that the OPEC+ plan has dampened global oil demand, projecting a softer fourth quarter. The forecast calls for a decline of roughly 340,000 barrels per day in that period compared with the same quarter in 2021, underscoring the global demand softening ahead.
As a result, total demand is expected to hold near 99.6 million barrels per day for the entire year, reflecting a modest decrease of about 60,000 barrels per day from prior estimates. The latest revision shows a steeper downgrade for 2023, with consumption projected at around 101.26 million barrels per day, well below earlier projections of 102.02 million barrels per day announced in the most recent revision. This gap highlights the sensitivity of demand forecasts to production cuts and macroeconomic developments across major economies.
IEA assigns responsibility to OPEC
Looking at 2023, the agency expects global oil consumption to rise by about 1.7 million barrels per day relative to 2022, a smaller uptick than the 1.9 million increase anticipated earlier in the year. Even more pronounced is the downgrade from the 3.2 million increase that was projected before the Russian invasion of Ukraine unfolded in late February. The IEA singles out the oil producers’ cartel and its Russian partners for contributing to market volatility, evidenced by last week’s decision to scale back supply further.
There is concern that the current price environment will not translate into a corresponding uptick in production by other exporters. Domestic producers, especially U.S. shale operators, are navigating supply chain challenges and rising costs that complicate adherence to the financial discipline demanded by investors. These dynamics could limit any automatic supply response to price signals.
Reserves strategy under review
Expectations for a lower demand trajectory also affect the pace at which global stockpiles are rebuilt. The replenishment of reserves—an important safety net for energy markets—faces potential interruptions through the remainder of this year and into the first half of the next. In late August, OECD industrial inventories stood at about 2.736 billion barrels, roughly 243 million barrels below the five-year average. The IEA notes that if governments in member states had not released large volumes onto the market between March and August to ease tensions, the optional build of stocks would have been significantly smaller.
The report emphasizes that the latest OPEC+ cuts, planned to begin in November, are unlikely to reach the maximum of two million barrels per day. Instead, the cuts are expected to approach around one million barrels per day, as several cartel members have operated well below their allocated quotas. The reductions are anticipated to be primarily absorbed by Saudi Arabia and the United Arab Emirates, with Russia potentially contributing to the reduction from December onward, aligning with the EU embargo on Russian oil already in effect.
For Canada and the United States, these market dynamics have practical implications. Government energy strategies, industrial planning, and household energy budgeting all hinge on how quickly supply responses materialize and how oil prices trajectory evolves. The evolving balance between demand and supply will continue to shape energy policies, investment decisions, and price expectations in North American energy markets.