Global Oil Market Faces Surplus in 2025, IEA Reports
Paris, Thursday, 14 November 2024.
The International Energy Agency forecasts a global oil surplus exceeding 1 million barrels per day in 2025. This projection, driven by weak Chinese demand and rising non-OPEC+ supply, could significantly impact oil prices despite ongoing geopolitical tensions.
IEA’s Forecast and the Role of Chinese Demand
The International Energy Agency (IEA) has projected a significant surplus in the global oil market for 2025, anticipating a surplus of over 1 million barrels per day. This forecast is largely influenced by China’s evolving economic landscape. Historically a major driver of global oil demand, China’s consumption has been contracting, marking a departure from its previous growth trajectory. The IEA notes that Chinese oil demand has decreased for six consecutive months up to September 2024, and its growth rate this year is only a fraction of what it was in 2023. This slowdown could cushion oil prices against geopolitical upheavals, such as those in the Middle East, by creating a buffer of supply[1][2].
Non-OPEC+ Supply Dynamics
In addition to China’s diminished demand, the expected increase in oil supply from non-OPEC+ countries further contributes to the anticipated surplus. The United States, along with Canada, Guyana, and Argentina, is projected to lead this growth, with U.S. non-OPEC+ supply expected to increase by 1.5 million barrels per day in both 2024 and 2025. Brazil is also forecasted to boost its supply significantly, adding over 800,000 barrels of new capacity by 2025[2][4]. These developments suggest that supply will continue to outpace demand, even if OPEC+ maintains its production cuts.
OPEC+ Production Strategy
OPEC+ has recently decided to postpone its planned production increase, which was initially scheduled for December 2024, now set to begin unwinding extra voluntary cuts from January 2025. This decision is aimed at stabilizing prices amid the expected surplus. Analysts predict that if OPEC+ fully unwinds its production cuts, oil prices could drop significantly, with some estimates suggesting a potential fall to as low as $40 per barrel. This would represent a substantial decrease from current prices, which are around $72 for Brent crude[3][5].
Global Economic Implications
The projected oil surplus and potential price declines have broad implications for the global economy. Lower oil prices can reduce inflationary pressures, benefiting oil-importing countries by reducing energy costs. However, they could also challenge oil-exporting nations by decreasing revenues and potentially destabilizing economies reliant on oil income. The IEA’s report highlights that the global oil demand growth is expected to remain below pre-pandemic levels, with significant contributions from India, which is projected to lead global oil consumption growth in 2024 and 2025[4][6].
Geopolitical Tensions and Market Stability
Geopolitical tensions continue to play a critical role in shaping oil market dynamics. The ongoing conflict in Ukraine and unrest in the Middle East add layers of uncertainty to the supply chain. Despite these challenges, the anticipated surplus suggests that the market might weather these geopolitical storms without drastic price hikes. The IEA warns that the combination of weak demand and robust supply could lead to a significant market surplus, potentially influencing global energy policies and economic strategies in the coming year[5][7].