Global oil markets face a surplus of more than 1 million barrels a day next year as Chinese demand continues to falter, cushioning prices against turmoil in the Middle East and beyond, the International Energy Agency said.
Oil consumption in China — the powerhouse of world markets for the past two decades — has contracted for six straight months through September and will grow this year at just 10% of the rate seen in 2023, the IEA said in a monthly report on Thursday. The global glut would be even bigger if OPEC+ decides to press on with plans to revive halted production when it gathers next month, according to the agency.
Amid this extended weakness in Chinese demand, crude prices have retreated 11% since early October despite ongoing hostilities between Israel and Iran, as traders focus growing output in the Americas, the Paris-based IEA said. The decline foreshadows a “well-supplied market in 2025,” it added.
“With supply risks omnipresent, a looser balance would provide some much-needed stability to a market upended by the Covid pandemic, Russia’s full-scale invasion of Ukraine and, most recently, heightened unrest in the Middle East,” the agency said. Brent futures traded near $72 a barrel on Thursday.
Global oil consumption will increase by 920,000 barrels a day this year — less than half the rate seen in 2023 — to average 102.8 million per day, it said. Next year, demand will grow by 990,000 barrels a day.
“The sub-1 million barrel-a-day growth pace for both years reflects below-par global economic conditions with the post-pandemic release of pent-up demand now complete,” according to the report. “Rapid deployment of clean energy technologies is also increasingly displacing oil in transport and power generation.”
The agency, which advises major economies, predicted earlier this year that world demand will stop growing this decade amid a shift away from fossil fuels toward electric vehicles and renewable energy.
While demand growth cools, supplies from producers such as the US, Brazil, Canada and Guyana is set to grow this year and next by 1.5 million barrels a day, the agency predicts. As a result, world supplies will exceed demand next year by more than 1 million barrels a day, even if the 23-nation OPEC+ cartel abandons plans to restore output.
The Organization of Petroleum Exporting Countries and its allies have been seeking to restart production halted since 2022, but has been forced to delay the move twice because the market remains so fragile. It currently plans to begin a series of modest monthly increases with a hike of 180,000 barrels a day in January, and will gather on Dec. 1 to review the decision.
OPEC’s secretariat has belatedly recognized the demand slowdown, cutting its forecasts for this year by 18% during four consecutive monthly downgrades. Nonetheless, its projection of 1.8 million barrels a day of growth remains roughly double the rate seen by the IEA, and higher than most other market observers.