There will be excess oil in large quantities, unless the world suffers some type of black swan that turns everything upside down. This is what emerges from the monthly report of the International Energy Agency (IEA) for the month of November, which highlights for the umpteenth time that the weakness of demand (crude oil consumption) and the strength of supply (production) are generating an imbalance that is already reflected in prices, but could have an even greater impact. The surplus is going to be historic (without taking into account the covid), since in the next four quarters there will be an average of around one million barrels per day left over.
To give some context to these data, Spain’s daily oil demand is more or less at 1.3 million barrels per day. It should be remembered that Spain continues to be the fourteenth largest economy in the world, despite having lost several positions. in recent years. So in the coming quarters there will be an amount of oil left over every day similar to what the whole of Spain needs to cover its needs. All of this, including the enormous OPEC cuts, which will remain in force until January 2025. The IEA believes that even if OPEC decided to never undo these limits, its production would still have excess crude oil. It must be taken into account that all OPEC cuts add up to just over 3 million barrels per day, that is, this is idle capacity that could be activated at any time if the cartel’s negotiations break down somewhere.
Demand this year will grow by only 920,000 barrels, to 102.8 million barrels per day (mb/d). In 2025 it will increase “only a shy million barrels to 103.8 mb/d. On the contrary, supply is much healthier. World oil supply increased by 290,000 barrels per day (kb/d) in October up to 102.9 mb/d, since the return of the Libyan barrels to the market more than offset the drop in supplies from Kazakhstan and Iran. OPEC+ delayed unwinding additional voluntary production cuts until January at the earliest. Non-OPEC+ producers will increase supply by approximately 1.5 mb/d in both 2024 and 2025.
Oil overflows and the price falls
All in all, the price of crude oil has fallen to the area of $71 per barrel, in the case of Brent, the benchmark in Europe. From the IEA they admit that “investors and oil market players have refocused their attention on fundamental factors, such as weak Chinese demand, the resumption of Libyan crude production and the planned reduction of production cuts from the OPEC+, all of which portends a well-supplied oil market in 2025,” the IEA report notes.
Oil demand has grown close to 2 mb/d last year and 1.2 mb/d per year, within the average seen between 2000-2019. But crude oil demand is entering a new era, with China’s marked slowdown having been the main drag on demand, and its growth this year expected to average just a tenth of the 1.4 mb/d increase in 2023. In fact, “Chinese demand contracted for the sixth consecutive month in September, bringing the average for the third quarter of 2024 to 270 kb/d below the previous year,” highlights the IEA..
The offer is in great health
Meanwhile, global oil supply is increasing at a healthy pace. Following the US election in early November, “we continue to expect the US to lead non-OPEC+ supply growth adding 1.5 mb/d in both 2024 and 2025, along with increased production from Canada, Guyana and “Argentina. Beset by a series of unscheduled outages and poor operational performance this year, Brazil is expected to be an important source of growth next year,” the report highlights.
Brazil is expected to increase supply by 210 kb/d to reach 3.7 mb/d in 2025, as more than 800 kb/d of new capacity it is installing offshore comes online. The total growth of the five producers will more than cover the expected growth in demand in 2024 and 2025.
However, the IEA believes that no one will be able to reverse this excess of crude oil: “Our current balances suggest that even if the OPEC+ cuts remain in force, global supply will exceed demand by more than 1 mb/d next year.” , says the report from the institution that belongs to the OECD.
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