In an unusual display of divergence, the Paris-based International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) have found themselves at odds over their respective forecasts for oil demand, marking the most significant divide since at least 2008. The IEA, representing industrialized nations, is set to update its demand forecasts on Thursday.
According to a report from Reuters, the disparity in demand projections between the IEA and OPEC has resulted in conflicting signals to traders and investors regarding market strength in 2024. Furthermore, the two groups are sending contradictory signals regarding the pace of the global transition to cleaner energy sources over the long term.
In February of this year, the IEA forecasted a modest growth in oil demand, estimating an increase of 1.22 million barrels per day (bpd) in 2024. In contrast, OPEC’s projections in its February report were significantly higher, anticipating a growth of 2.25 million bpd. This discrepancy amounts to approximately one percent of global demand. Additionally, while the IEA predicts that oil demand will peak by 2030, OPEC’s forecasts extend to 2045 without indicating a peak.
Despite their differences in demand forecasts, OPEC expressed encouragement at a recent commentary from the IEA emphasizing the importance of oil security. In response, OPEC stated its encouragement by the IEA’s message and reiterated the continuing significance of oil to the world.
The divergence between IEA and OPEC forecasts comes against the backdrop of shifting global attitudes towards fossil fuels. In 2021, the IEA advised against funding new oil, gas, and coal supply projects in alignment with global efforts to achieve net-zero emissions by mid-century. This marked a departure from previous calls to increase investment in fossil fuels. Similarly, at the COP28 climate summit in December, around 200 countries agreed on the necessity of transitioning away from fossil fuels.
In a related development, OPEC announced in 2022 its decision to cease using data from the IEA when assessing the state of the oil market. Both the IEA and OPEC are widely regarded as the most influential forecasters of oil demand growth worldwide.
Meanwhile, on Wednesday, international crude oil prices experienced a two percent increase, reaching a four-month high of $83.89 per barrel. This surge was triggered by Ukraine’s attack on a Russian refinery, which raised concerns about supply disruptions.
Stock Market Reaction:
In today’s trading session, the Nifty 50 index witnessed a significant decline of 1.51%, falling below the 22,000 mark to reach 21,997 points. This marks the index’s third-largest intraday drop in 2024.
Out of the 50 constituents of the index, 44 ended today’s session in negative territory. Stocks such as Power Grid Corporation of India, Coal India, Adani Ports & Special Economic Zone, Adani Enterprises, NTPC, Tata Steel, and ONGC experienced losses of over 5%.
The market downturn was further influenced by the uptick in US inflation to 3.2% in February, raising concerns about a potential rate cut by the US Federal Reserve. This development led to a surge in the dollar index and an increase in the US stock market.
However, the domestic market responded negatively to the prospect of prolonged high interest rates, which could deter foreign capital inflows into emerging markets like India, thereby adversely affecting them.
Sectoral Performance:
On the sectoral front, Nifty Metal emerged as the biggest laggard, declining by 5.69%, followed by Nifty Media (down 5.62%), Nifty Realty (down 5.32%), Nifty Oil and Gas (down 4.87%), Nifty PSU Bank (down 4.28%), and Nifty Auto (down 2.84%). Only Nifty FMCG ended the day in positive territory.
The recent decline has resulted in a 2.2% correction in the Nifty 50 over the last three trading sessions. Analysts believe that the index is poised for further decline in the near term.
Rupak De, Senior Technical Analyst at LKP Securities, highlighted the Nifty’s breakdown from a rising channel on the daily chart, signaling the conclusion of the previous uptrend and the potential beginning of a downtrend. Additionally, the index has descended below the recent consolidation phase on the daily timeframe, indicating increasing weakness.
According to Mr. Rajesh Bhosale, Technical Analyst at Angel One, the index’s near-term resistance is anticipated around the 22,200–22,250 range, while immediate support lies near the 50EMA, situated between 21,850 and 21,800, followed by a swing low at 21,500. He advised traders to exercise caution and utilize key support and resistance levels for trade setups, particularly given the expected heightened volatility.