IEA Predicts Large Surplus in Oil Market Due to Slow Demand Growth

IEA Lowers Demand Growth Estimate for 2024

The International Energy Agency (IEA) announced on Tuesday that the oil market could face a significant surplus next year due to an increase in supply and a slowdown in demand growth. The agency has further reduced its demand growth estimate for 2024.

According to the IEA's closely monitored Oil Market Report, global oil demand is expected to rise by only 862,000 barrels per day (bpd) this year. This is mainly due to a slowdown in consumption growth in China. This latest estimate is a downgrade from the 903,000 bpd growth in global oil demand predicted in the report from the previous month.

Oil Demand Growth Expected to be Below 1 Million bpd in 2025

The IEA stated that demand is projected to grow by less than 1 million bpd in 2025. The agency slightly increased its estimate to 998,000 bpd from 954,000 bpd. The agency pointed out that Chinese oil demand is particularly weak, with consumption falling by 500 kb/d year-on-year in August, marking the fourth consecutive month of declines.

Rise in Oil Supply from Non-OPEC+ Producers

On the other hand, oil supply from producers outside the OPEC+ agreement is increasing and is expected to make strong gains of around 1.5 million bpd this year and the next. The United States, Brazil, Guyana, and Canada are expected to account for most of the increase, boosting their combined production by over 1 million bpd in both years, according to the IEA. This increase will more than cover the expected demand growth, the agency stated.

In recent weeks, increased concerns about oil supply security have clashed with a well-supplied market, the IEA noted. The agency added in its monthly report that heightened oil supply security concerns are set against a backdrop of a global market that appears to be adequately supplied.

OPEC+ Has High Spare Production Capacity

The IEA also mentioned that the spare production capacity within OPEC+ is at historic highs. The effective spare capacity, excluding Libya, Iran, and Russia, comfortably exceeded 5 million bpd in September, the agency revealed.

While the IEA confirmed its readiness to act in case of supply shocks, it noted that for now, supply continues to flow. Unless there is a major disruption, the market is expected to face a significant surplus in the new year.

Yesterday, OPEC also reduced its oil demand growth outlook for the third consecutive month. This was due to actual consumption data so far this year and expectations of slightly lower demand in some regions, including China.

Bottom Line

The prediction of a sizeable surplus in the oil market due to slowing demand growth and increasing supply raises important questions about the future of the global oil industry. What are your thoughts on this development? Do you think the surplus will have significant effects on the oil market? Share your thoughts and this article with your friends. Sign up for the Daily Briefing, which is available every day at 6pm.