The world oil market is heading for a sizable surplus in the new year, the International Energy Agency said on Tuesday as it reassured markets that the agency stood ready to act if needed to cover any supply disruption from Iran.
Oil prices have risen in recent weeks on investor concern that Israel may retaliate against a missile attack from Iran, a major oil exporter and OPEC member, by hitting its oil facilities or nuclear sites.
But the IEA, which manages industrialized countries’ emergency oil stocks, said public stocks were more than 1.2 billion barrels and spare capacity in OPEC+, which comprises the Organization of the Petroleum Exporting Countries and allies such as Russia, stood at historic highs.
“As supply developments unfold, the IEA stands ready to act if necessary,” the agency said in a monthly report on Tuesday.
“For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizable surplus in the new year.”
Also in the report, the IEA further cut its global oil demand growth forecast for this year, citing weakness in China, a day after OPEC also lowered its demand projections.
Oil was down more than 4 per cent a barrel toward US$74 on Tuesday, pressured by the weaker demand outlook and after a media report said Israel is willing not to strike Iranian oil targets.
World oil demand will rise by 860,000 barrels a day this year, down 40,000 b/d from the previous forecast, the IEA said. For next year, it sees an expansion of 1 million b/d, about 50,000 b/d higher than expected last month.
China has for years driven global rises in oil consumption. The IEA has been saying that slower Chinese economic growth and a shift toward electric vehicles have changed the paradigm for the world’s second-largest economy.
The Paris-based agency now expects Chinese demand to grow by 150,000 b/d in 2024, down 30,000 b/d from the previous forecast. Consumption dropped by 500,000 b/d in August compared to the same month last year, a fourth consecutive month of declines.
“Chinese oil demand continues to undershoot expectations and is the principal drag on overall growth,” the IEA said.
OPEC also reduced its forecast for 2024 global demand growth on Monday, but it is still projecting a much stronger expansion of 1.93 million b/d driven in part by a bigger contribution from China. The gap between the IEA and OPEC forecasts is equal to more than 1 per cent of world demand.
While demand slows, non-OPEC nations are driving up supply. The IEA forecasts non-OPEC growth at 1.5 million b/d this year and next, with higher production from the U.S., Guyana, Canada and Brazil – above the rate of demand growth.
“Heightened oil supply security concerns are set against a backdrop of a global market that – as we have been highlighting for some time – looks adequately supplied,” the IEA said.