The International Energy Agency (IEA) stated on Tuesday that the global oil market is poised for a significant surplus in the upcoming year while assuring markets that it is prepared to respond to any supply disruptions from Iran. Oil prices have risen recently due to investor worries that Israel might retaliate against a missile strike from Iran—a key oil exporter and OPEC member—by targeting its oil facilities or nuclear sites.
However, the IEA, which oversees emergency oil reserves for industrialized countries, reported that public oil stocks exceed 1.2 billion barrels and that OPEC+ spare capacity, which includes the Organization of the Petroleum Exporting Countries and allies like Russia, is at historic highs. “As supply developments unfold, the IEA stands ready to act if necessary,” the agency noted in its monthly report.
Currently, supply remains steady, and unless there is a major disruption, the market is expected to face a significant surplus in the new year. In its report, the IEA also lowered its global oil demand growth forecast for this year due to weaknesses in China, a day after OPEC made similar adjustments. On Tuesday, oil prices dropped more than 4% to around $74 per barrel, influenced by the weakened demand outlook and a media report indicating that Israel is inclined not to strike Iranian oil facilities.
China’s Demand Decline
The IEA revised its forecast for world oil demand growth for this year to an increase of 860,000 barrels per day (bpd), a reduction of 40,000 bpd from previous estimates. For next year, the agency anticipates an expansion of 1 million bpd, about 50,000 bpd higher than last month’s expectations. Historically, China has been a significant driver of global oil consumption growth, but the IEA has indicated that slower economic growth and a transition to electric vehicles are altering this trend for the world’s second-largest economy.
As reported by economictimes, the agency now expects Chinese oil demand to rise by 150,000 bpd in 2024, a decrease of 30,000 bpd from its prior forecast. Notably, consumption fell by 500,000 bpd in August compared to the same month last year, marking the fourth consecutive month of decline. “Chinese oil demand continues to fall short of expectations and is the primary obstacle to overall growth,” the IEA stated.
OPEC also revised its 2024 global demand growth forecast downward but still anticipates a stronger expansion of 1.93 million bpd, partly due to a larger contribution from China. The discrepancy between the IEA and OPEC forecasts represents over 1% of global demand.
As demand slows, non-OPEC countries are increasing supply. The IEA projects non-OPEC production growth of 1.5 million bpd this year and next, driven by rising output from the U.S., Guyana, Canada, and Brazil, surpassing the rate of demand growth. “Concerns about oil supply security are emerging against a backdrop of a global market that, as we have been emphasizing for some time, appears adequately supplied,” the IEA concluded.
