Longer routes due to the Red Sea conflict delay the ceiling of oil demand

In 2024, forecasts for the future of oil demand they have taken a turn. In a year in which it seemed that consumption was going to be much weaker than normal due to the slowdown in economic growth, now everything indicates that demand will exceed supply during the year, generating a shortage of the energy resource. which is putting upward pressure on prices. The strength of the American economyand others, like India, are pulling the bullish wagon for the barrel, but there are other unexpected elements, such as new trade routes that bypass the Red Sea, which are contributing to delaying the planned demand ceiling for crude oil. The industry is clear: demand is surprisingly strong, and will continue to be so in the coming months.

The million-dollar question in the oil market is when the maximum ceiling in fossil fuel consumption will be reached, the level at which demand will stop growing and stagnate, or begin to contract. During years, There has been speculation about the moment when this peak will arrive, but demand has proven stubborn, and continues to set all-time highs. In 2023 it did so again, according to the Energy Information Agency (IEA), at around 101.1 million barrels per day, as highlighted by the Agency at the end of the year, and for the first three months of 2024 it predicts that it will grow again by 1 .7 million barrels per day.

This forecast revises upwards what was expected at the beginning of the year, when the agency warned that the increase in the first quarter would be 1.4 million barrels per day, and this new projection assumes that the world oil market will be in a situation of shortage, compared to the oversupply that was expected before. This has boosted barrel prices, which have already accumulated an increase of almost 12% in 2024.. The conflict in the Red Sea, which has forced the use of new trade routes, is the latest argument that suggests that the ceiling in oil demand will have to wait.

100,000 more barrels of demand due to the diversion

Fuel consumption by large shipping ships is enormous, to the point that the figures are hard to believe: a container shipping ship consumes around 63,000 gallons of fuel in a day, according to Freight Waves, a provider of data and information on trade. This is the equivalent of more than 238,000 liters of gasoline in a single day.

According to the calculations of Vitol, one of the largest energy traders on the planet, the configuration of new alternative routes to the Red Sea, due to the attacks by the Houthi rebels on ships passing through this region, have increased world oil demand by 100,000 barrels a day. Ships are being forced to transit the cape of good hopein the south of the African continent, to be able to reach its destination, which increases fuel consumption and this is helping to delay the definitive ceiling of oil demand in this cycle.

Oil is still very much alive

Last week, in Houston, Texas, one of the most important events in the energy market was held, the S&P Global CERAWeek conference, a meeting that was marked by the repeated allusions of the major players in the industry to the strength of global oil demand. “We must abandon this fantasy of forgetting oil and gasand invest in these resources appropriately, reflecting realistic demand forecasts,” said Amin Nasser, CEO of Aramco at the hearing.

And his words were echoed by other major figures in the industry, such as Russell Hardy, CEO of Vitol, who confirmed that his company is delaying the planned ceiling of oil demand until the early 2030s, due to lower expectations for the adoption of electric vehicles, an estimate that fits with the conclusions of the IEA’s latest monthly report.

Another major oil trader, Gunvor, also forecasts an increase of 1.4 million barrels a day in global crude oil demand this year, close to the 1.5 million expected by international trading company Trafigura. “The US economy, in particular, is surprising on the upside,” said the firm’s chief economist in Houston.

And it’s not just the US: India, one of the largest oil importers on the planet, will grow at a rate of 7% this year, according to the government’s own forecasts, which will contribute to keeping the Asian giant’s demand for oil high. . “We expect a new record of global oil demand this year”confirms Helen Currie, the chief economist at oil producer ConocoPhillips. That is why countries like Kuwait have decided to increase their production capacity: “In the process of energy transition, we expect that oil demand will continue to grow,” confirmed Nawaf Al-Sabah, CEO of the country’s state oil company.

We must not forget that, according to the calculations of the team of analysts at Bloombergthe increase in the adoption rate of electric cars is going to slow down in the coming years, while The global fleet of gasoline and diesel vehicles continues to growl. This confirms that the biggest threat to global oil consumption, electric cars, in the agency’s opinion, is still not being able to eclipse combustion engines.