“When the music stops…”, this is how the monthly report of the International Energy Agency (IEA) begins, a document in which it has significantly revised downwards its forecasts on global oil demand for this year, it will experience a very marked slowdown in its growth, and this is mainly due to China, which until July had experienced four consecutive months of decline in consumption. The IEA has significantly revised demand for the coming quarters, which will lead, according to its forecasts, to a sharp increase in stocks. In addition, the agency has assured that even if OPEC does not return the cuts to the market, there will still be an excess of oil, because the producing countries outside the cartel (United States, Guyana, Canada…) are increasing their production above the growth of global demand.
In its monthly oil market report published on Thursday, the IEA estimates that global demand will increase by 900,000 barrels per day in 2024 to reach 102.99 million, while it estimated a month ago that it was 970,000. Its projections for 2025 remain the same, with an increase of 950,000 to 103.94 million barrels per day. It is especially worth seeing the sharp slowdown, given that the increase had been 2.1 million barrels per day in 2023.
Chinese demand stops
The main cause of this slowdown is China, where consumption in July fell by 280,000 barrels compared to the same month last year, and this is now happening for the fourth consecutive month. This is a clear contrast to the trend of the previous twelve months, during which the rate of increase was one million barrels per day, and even more so with the rate of 2023, of 1.5 million.
For the whole of 2024, IEA experts now estimate that the Asian giant will increase its demand by only 180,000 barrels per day compared to 2023 for two main reasons, the economic slowdown and the continued substitution of oil derivatives as fuel in traffic due to the explosion of electric vehicles. In total, the price of crude oil has fallen by 18% since July, with Brent oil losing $70 per barrel.
Outside of China, demand is anemic in the developed world, where it will remain nearly two million barrels per day below pre-pandemic levels this year. The authors of the study point out that in the United States, the world’s largest oil consumer, gasoline consumption declined in five of the first six months of the year. All this supports their expectation that global oil consumption will peak at the end of this decade.
OPEC loses control of the market
“In an apparent effort to halt the precipitous decline in oil prices, Saudi Arabia and its OPEC+ allies announced in early September that they would delay by two months the start of their plan to end additional voluntary production cuts. The delay gives the alliance some breathing room. “It is time to further assess the demand outlook for next year, as well as the impact of the disruptions in Libya and its plan to phase out additional cuts of 2.2 mb/d by the end of next year,” they explain from the International Energy Agency. . But OPEC is only buying time before facing the harsh reality.
“As non-OPEC+ supply increases faster than overall demand (barring prolonged stagnation in Libya), OPEC+ could see substantial surplus even if its additional restrictions remain in place“In a rapidly changing market, reliable energy data and unbiased market analysis will be more important than ever,” the IEA warns.
On the supply side, the most significant thing in the market analysis carried out by the IEA is the increase in the contribution of countries that are not part of the cartel that forms the Organization of the Petroleum Exporting Countries (OPEC) with its partners (and in particular Russia) is higher than the increase in global demand.
In concrete terms, this year, producers that do not belong to the OPEC+ bloc will put 1.5 million barrels per day more on the market than in 2023. Assuming that OPEC+’s containment strategy and its voluntary reductions will lead to a decrease in their oil extractions of 810,000 barrels per day, global production would then increase by 660,000 barrels per day to reach a record 102.9 million.
In an attempt to stem the sharp fall in the price of a barrel of crude oil (it fell from $82 at the beginning of August for Brent to just over $70 on Wednesday), Saudi Arabia and its allies have announced that they are postponing the end of voluntary production cuts.
A way to give itself time to observe the evolution of demand, as well as the impact of the situation in Libya, which saw its extraction fall from 1.2 million barrels per day in July to 500,000 in August, and its capacities to restore production. The IEA estimates that, even assuming that OPEC+ maintains its voluntary reductions, Global crude oil production to increase by 2.1 million barrels per day in 2025to a new all-time high of 105 million.
