The oil market is poised to experience a significant surplus in the coming year, driven by a combination of robust supply and declining demand growth, as highlighted by the International Energy Agency (IEA) in its recent Oil Market Report. The IEA has revised its oil demand growth estimates for 2024 downwards, forecasting an increase of merely 862,000 barrels per day (bpd) for this year, compared to a previous estimate of 903,000 bpd. This tepid growth is largely attributed to slowing consumption patterns in key markets like China, where demand has unexpectedly weakened, contributing to a downward trajectory for global oil consumption.
China’s oil demand has shown a notable decline, with August data illustrating a year-on-year drop of 500,000 bpd, marking the fourth consecutive month of decreasing consumption in this critical market. This trend raises alarms about the resilience of global oil demand amid various factors contributing to economic slowdown. Despite these challenges, the IEA’s forecasts suggest that global oil demand growth for 2025 is likely to remain below the 1 million bpd threshold, with a slight upward adjustment in estimates to 998,000 bpd.
In stark contrast to the muted demand outlook, the supply side of the equation is exhibiting strong growth. Non-OPEC+ producers like the United States, Brazil, Guyana, and Canada are set to significantly increase their output, with an anticipated gain of around 1.5 million bpd over the next year. Collectively, these countries are projected to boost their production by over 1 million bpd, effectively offsetting the forecasts of demand growth. The IEA suggests that this increase in supply will adequately meet the subdued demand expectations, keeping the market well-supplied in the imminent future.
The recent landscape of the oil market has been characterized by a juxtaposition of unease regarding supply security and an overall abundance of oil. The market reflects a paradox where concerns over potential supply disruptions coexist with an oversupply scenario, as indicated by the IEA’s assessment. Notably, spare production capacity within OPEC+, excluding nations with instability such as Libya, Iran, and Russia, remains high, surpassing 5 million bpd in September. This abundant spare capacity not only indicates the ability of OPEC+ to respond to emerging market dynamics but also underscores the current oversupply conditions.
The IEA reassured stakeholders of its preparedness to intervene in the event of supply shocks, yet it emphasized that supply levels remain stable as of now. With ongoing production flows and the absence of any significant disruptions, it becomes increasingly apparent that the oil market is facing a notable surplus as we transition into the new year. Consequently, the potential for disruption becomes less immediate, allowing the well-supplied market to navigate through existing oversupply scenarios.
Compounding the situation, OPEC has also revised its oil demand growth outlook downward for a third consecutive month, citing actual consumption data and a forecast for reduced demand in several regions, notably China. The alignment of these assessments from both the IEA and OPEC paints a comprehensive picture of a market that is grappling with less demand growth amid rising supply capabilities. As the global oil environment shifts, industry participants will need to closely monitor these evolving dynamics to manage potential risks associated with excessive supply relative to demand.