IEA: global oil prices ease amid economic uncertainty and demand slowdown

Global oil prices have receded from their October highs, signaling a shift in market focus from geopolitical tensions to growing concerns over global economic health, dwindling demand, and sufficient oil supplies. Brent crude oil, which topped US$80 per barrel in early October amid fears of escalated conflict in the Middle East, has since dropped to around $72 per barrel as the immediate risk of an Israeli attack on Iran's energy infrastructure subsided, according to the latest International Energy Agency (IEA) Oil Market Report.

As the market steers its attention back to fundamentals, industry analysts are keeping a close watch on several key factors: weak demand from China, resumed oil production in Libya, and planned production adjustments from the OPEC+ alliance. These factors are expected to maintain a balanced oil supply into 2025, the report indicated. Speculative interest in oil futures has also remained low, as traders stay cautious in a market dominated by economic concerns.

Economic sluggishness stymies oil demand

In 2024, global oil demand is on pace to increase by 920,000 barrels per day (kb/d), averaging 102.8 million barrels per day (mb/d). While this marks an increase, it represents a slowdown compared to last year’s robust 2 mb/d growth and the average annual growth of 1.2 mb/d from 2000 to 2019. China, previously a key driver of global oil demand, has seen a significant deceleration. Demand contracted for the sixth consecutive month in September, leaving third-quarter demand in China 270 kb/d below the same period last year.

By contrast, advanced economies have seen a modest recovery in oil demand, which expanded by 230 kb/d year-on-year in the third quarter. However, with world consumption expected to grow by just 990 kb/d in 2025, analysts suggest that weak global economic conditions are driving down demand, further compounded by the rapid uptake of clean energy alternatives in transport and power sectors.

Supply remains steady, led by US and Latin American producers

On the supply side, production is set to remain robust. Following the U.S. elections earlier this month, the US is projected to lead non-OPEC+ supply growth, which is expected to increase by 1.5 mb/d annually through 2025.

Canada, Guyana, Argentina, and Brazil are also expected to contribute to this increase, with Brazil potentially adding 210 kb/d next year as new capacity comes online.

OPEC+ delays production increase amid sufficient supply

Meanwhile, in a move reflecting the current ample supply, the OPEC+ alliance announced at its November 3 meeting that it would delay a planned production increase. Originally scheduled to add 180 kb/d in December, the alliance will instead consider unwinding the extra voluntary cuts starting in January 2025 at the earliest. OPEC+ will reconvene on December 1 to reassess market conditions and set production policy for 2025.

Potential surplus could provide market stability

Market projections suggest that even if OPEC+ maintains current production cuts, global oil supply could outpace demand by over 1 mb/d in the coming year. This potential surplus, coupled with easing geopolitical fears, could provide much-needed stability to a market still reeling from the pandemic, the Russia-Ukraine war, and ongoing unrest in the Middle East.

As 2024 nears its end, the oil industry remains cautious yet hopeful that steady supply and subdued demand may bring relative calm to a market that has experienced significant volatility over recent years.