IEA: Oil Market Less Tight Due to Supply Growth

The International Energy Agency (IEA) reported that the tightness anticipated in global oil markets for this quarter will be less pronounced due to increases in supply outstripping the upward adjustments in demand.

The IEA increased its predictions for global fuel consumption this year due to unexpected growth in China. Despite this, the agency still expects a supply shortage in the fourth quarter, yet it’s estimated to be around 30% less than initially estimated, at approximately 900,000 barrels per day.

“World oil demand continues to exceed expectations,” said the agency in the report. Yet “world oil supply growth is also exceeding expectations” as “production growth in the US and Brazil has been outperforming forecasts.”

The subdued projection aligns with a decline in prices, where there was a momentarily drop to a three-month low below US$80 per barrel in London last week. Concerns regarding potential disruptions in oil exports due to conflicts in the Middle East causing increased inflationary pressures have lessened. Additionally

The agency stated that global oil demand is set to increase by 2.4 million barrels per day this year, slightly surpassing last month’s projection. It is expected to reach an all-time high annual average of 102 million barrels per day. Approximately 75% of this increase is attributed to record-breaking consumption in China, while the upgrade in the forecast is primarily fueled by heightened fuel usage in the United States.

“The macroeconomic sentiment is deteriorating—there’s a lot of concern about interest rates and slowing growth,” said the head of the IEA’s oil market divisions, Toril Bosoni. Nonetheless, “oil demand is holding up strongly and exceeding expectations, especially China going from strength to strength.”

According to the report, oil markets continue to face scarcity, as global inventories witnessed a significant decrease of around 1.5 million barrels per day during the last quarter.

However, during the last three months of the year, the increase in demand is just half of the 400,000 barrel-per-day surge in supplies from sources outside OPEC. As a result, this reduces the resultant shortfall to less than 1 million barrels per day.

This accounts for less than a third of the extraordinary deficit forecasted earlier in the week by the Organization of Petroleum Exporting Countries (OPEC). OPEC has significantly reduced its production to stabilize oil prices and amplify revenue for its member nations.

Saudi Arabia has increased its production cuts by 1 million barrels per day. Numerous analysts anticipate this restriction to persist into the following year, potentially being declared during the upcoming OPEC+ alliance gathering on November 26. Riyadh has attributed the recent drop in crude prices to a “ploy” by speculators.

Some analysts feel that conditions are favourable for a price recovery before the end of the year. Crude is heading “well into the US$90s,” according to the founder of consultancy Rapidan Energy Group, Bob McNally.

The IEA expects global oil markets to return to a supply surplus in the first half of 2024, despite a dramatic 60% drop in demand growth. Consumption will only rise by 930,000 barrels per day next year; this slower growth stems from the completion of the post-pandemic rebound and an improvement in energy efficiency. This projected increase is less than half of what OPEC has predicted in terms of consumption growth.