Global oil markets are expected to experience a surplus of more than 1 million barrels per day (bpd) next year, as weakening Chinese demand continues to dampen consumption, the International Energy Agency (IEA) reported.
Despite ongoing geopolitical tensions in the Middle East, including the Israel-Iran conflict, the surplus is anticipated to cushion prices, with demand growth slowing globally.
China, long the engine of global oil consumption, has seen its oil demand contract for six consecutive months through September.
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According to the IEA’s latest monthly report, the country’s oil consumption will grow at just 10 percent of last year’s rate, contributing to an overall global glut.
“It’s possible that China’s oil demand has peaked,” Toril Bosoni, the IEA’s Head of Oil Industry and Markets, said in an interview with Bloomberg TV.
“It’s not just the economy and the shift, the slowdown in the construction sector. It’s the transition to electric vehicles, high-speed rail and gas in trucking that is undermining Chinese oil demand growth,” Bosoni added.
This extended weakness in Chinese demand is reflected in crude prices, which have dropped 11 percent since early October.
Despite the Middle East unrest, traders are focusing on the growing oil production in the Americas, particularly in the US, Brazil, Canada, and Guyana, Bloomberg reports.
The IEA forecasted that global oil consumption will rise by just 920,000 bpd this year, less than half the growth seen in 2023, and will increase by 990,000 bpd next year.
“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. Rapid deployment of clean energy technologies is also increasingly displacing oil in transport and power generation,” the IEA report stated.
Although global oil demand is slowing, supply is rising. The IEA predicts that production from countries such as the US and Brazil will increase by 1.5 million bpd this year and next, resulting in a market surplus, even if the Organisation of Petroleum Exporting Countries (OPEC) maintains its production cuts.
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OPEC has been attempting to restart production since 2022 but has delayed the plan twice due to market fragility. The group intends to implement modest monthly increases starting in January, with a planned 180,000-barrel-a-day hike.
Despite recognising the demand slowdown, OPEC has reduced its growth forecast for this year by 18 percent after multiple downgrades. Nevertheless, its projection of 1.8 million bpd growth remains higher than the IEA’s and other market analysts’ forecasts.
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