Overwhelmed oil market due to dwindling appetite for fuel from prominent economic powerhouses
The International Energy Agency (IEA) has revised its forecast for global oil demand and supply, predicting a significant increase in oil supply in 2022 and 2023, primarily driven by strong production growth outside the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+).
According to the IEA, oil demand is expected to grow modestly, with an increase of 700,000 barrels per day (bpd) in 2022, down from the previously forecasted 720,000 bpd. However, this growth is anticipated to be outpaced by supply, leading to significant oil surpluses.
The key reasons for this rapid increase in oil supply include:
- Increased supply outside OPEC : The IEA forecasts a rise of around 1.4 million bpd in 2023 and an additional 1 million bpd in 2024 outside OPEC+, highlighting strong growth from US natural gas liquids, Canadian crude, and offshore production in Brazil and Guyana.
- OPEC+ production dynamics: OPEC+ is accelerating the unwinding of its voluntary production cuts (2.2 million bpd), scheduled to be fully lifted by September 2025, which adds to the rising supply.
- Demand growth expectations: Though oil demand is expected to grow modestly, the supply growth surpasses this, contributing to an anticipated global oil surplus reaching over 1.7 million bpd in 2025 and continuing into 2026.
The IEA has also revised its past demand estimates upward, adding about 260,000 bpd for 2022 and 330,000 bpd for 2023. Despite these revisions, the agency maintains an optimistic supply outlook that is somewhat more bullish than other agencies like the US Energy Information Administration (EIA), which forecasts some decline in US production next year.
The increased oil supply, along with concerns about the economic impact of trade tariffs, has weighed on oil prices this year. Brent crude traded lower than $66 a barrel after the IEA published its report.
The IEA predicts that oil supply will rise by an additional 1.9 million bpd in 2024. Global refinery runs are also expected to increase, with refinery runs rising by 670,000 bpd, to 83.6 million bpd, in 2025. The IEA expects global crude oil refining rates to approach a fresh all-time high of 85.6 million bpd in August.
Additional sanctions on Russia and Iran may curb supplies from the world's third and fifth largest producers, the IEA said. However, continued Chinese stockbuilding due to major institutional and policy developments aimed at enhancing energy security may help absorb the surplus.
In other developments, the European Union lowered a price cap for Russian oil as part of its latest sanctions on Moscow. The U.S. announced new sanctions on Iran last month.
[1] International Energy Agency. (2021). Oil market report: June 2021. Retrieved from https://www.iea.org/reports/oil-market-report-june-2021
[2] International Energy Agency. (2021). World Energy Outlook 2021. Retrieved from https://www.iea.org/reports/world-energy-outlook-2021
[3] International Energy Agency. (2021). Oil market report: April 2021. Retrieved from https://www.iea.org/reports/oil-market-report-april-2021
[4] U.S. Energy Information Administration. (2021). Short-term energy outlook. Retrieved from https://www.eia.gov/outlooks/steo/
[5] Organisation of the Petroleum Exporting Countries. (2021). Monthly oil market report: June 2021. Retrieved from https://www.opec.org/opec_web/static_files_project/media/downloads/momr_202106.pdf
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