We will bathe in the oil next year

The International Energy Agency, IEA according to his latest forecast the global oil market will be characterized by a significant oversupply next year. A surplus of more than 1 million barrels per day is also conceivable in the face of falling Chinese demand, and according to the organization’s experts, conflicts in the Middle East will not be able to offset this either.

China’s oil consumption, which has been in no small part responsible for the increase in global oil consumption over the past 20 years, has fallen for six consecutive months through September. This year, it is expected to grow at only 10 percent of the rate seen in 2023. The global oversupply could be strengthened if the OPEC+ member countries at their meeting to be held next month continue to maintain their plans to restart previously shut down capacities.

Due to the weakness of Chinese demand, the world market price of crude oil has fallen by 11 percent since the beginning of October. All this despite the fact that the relationship between Israel and Iran is becoming more and more tense, and this has traditionally resulted in a continuous rise in oil prices. However, the most recent impact of this was not achieved, we wrote about this in more detail here. However, the market players instead focused more and more on the ever-growing American production, and the players see that the global economy will be very well supplied with the energy carrier in 2025. According to the organization’s experts, the size of buy positions opened for speculative purposes on the oil market has sunk close to historic lows.

In addition to ubiquitous supply risks, a looser balance would provide some much-needed stability in a market that has been disrupted by the Covid-19 pandemic, Russia’s invasion of Ukraine and, most recently, escalating unrest in the Middle East, the report cites a Bloomberg.

Global oil consumption will increase by 920,000 barrels per day this year – less than half of the rate in 2023 – to 102.8 million barrels per day on average. Next year, demand will increase by 990,000 barrels per day. The growth rate below 1 million barrels per day in both years is less than the growth of the global economy would justify. However, the effect can be felt that after the years of epidemics, the accumulated demand is on the wane, while technologies utilizing cleaner energy are spreading rapidly, and these are increasingly displacing fossil energy sources.

The agency predicted earlier this year that growth in global oil demand would stall by the end of the decade as the shift to electric vehicles and renewable energy sources intensified.

While demand expansion is slowing, supply from the United States, Brazil, Canada and Guyana could rise by 1.5 million barrels per day this year and next. For this reason, the market will be oversupplied even if OPEC+ does not decide to increase production.

It should be remembered that OPEC sought to restart production, which had been stopped since 2022, but they were twice forced to postpone the move due to the fragility of the market. They are currently planning to start restoring production at a monthly rate of 180,000 barrels per day in January.

OPEC, the agency said, was late in recognizing the slowdown in demand and revised its forecast four times this year, by a total of 18 percent. Even so, they are sticking to their forecast of an increase in demand of 1.8 million barrels per day this year, which is about twice the figure expected by the IEA. The different prognoses of the two organizations were previously analyzed here.

The situation may also cause a surprise

At the same time, according to technical analysts, pessimistic expectations – at least from the point of view of oil producers – have largely been incorporated into the price of oil. This is also indicated by the previously mentioned significant underpositioning of investors taking speculative positions. In the meantime, the price of oil, although it does not really want to jump, has been successfully held up to now by the support near $70 (for Brent crude oil, at the rate of WTI, this is at a level well below $5), which was also indicated by the big increase that took place between the spring of 2020 and 2022 as a determining level in terms of trend.

If this support were to break, a further massive price drop could follow. However, any new information that acts in the direction of an increase in the price of oil could even trigger a more massive increase from this level, precisely because of the underposition of the actor. These could be, for example, better-than-expected growth data of the Chinese economy, or the unexpected loss of the capacities of one of the larger producers on the supply side. At the moment, actors are quite pessimistic about the prospects of the Chinese economy, on the one hand because of Donald Trump’s election victory, and on the other hand because the Chinese government’s stimulus package is smaller than expected for the time being.