Full IEA Monthly Report: Lowering global oil demand expectations for this year, oil safety is the focus

The International Energy Agency (IEA) released its latest monthly report, lowering the global oil demand forecast for this year, but raising the global oil demand forecast for next year. The monthly report said that adequate supply offsets the geopolitical risks faced by oil production, but if necessary (regarding the tense situation between Iran and Israel), it will be ready to act, as the IEA's public oil stocks have already exceeded 1.2 billion barrels. The IEA emphasizes oil safety in this monthly report, pointing out the impact of the tense situation in the Middle East on oil prices, but believes that oil supply continues to flow, and if there is no major interruption, the market will face excess next year.

Here are the highlights of the IEA's official monthly report:

Oil supply and demand

Global oil demand is expected to increase by less than 900,000 b/d in 2024 and close to 1 million b/d in 2025. Compared with the annual increase of about 2 million b/d after the pandemic from 2022 to 2023, this growth rate has clearly slowed. The report mentioned that China is the main factor in the slowdown in growth. This year and next year will each account for about 20% of global growth, while in 2023 this share will be close to 70%.

Global oil supply fell sharply by 640,000 b/d to 102.8 million b/d in September, mainly due to political difficulties in Libya disrupting the country's oil production and exports, and oil field maintenance efforts in Kazakhstan and Norway, which reduced production. Supply growth in non-OPEC+ countries is expected to be around 1.5 million b/d this year and next, with the American region accounting for 80% of the increase.

In September, refining profits declined further, and cracking price differences for gasoline, aviation fuel, and diesel worsened, while crude oil prices rose due to a tightening market. As a result, global crude oil processing volume is expected to be further reduced by 180,000 b/d to 82.8 million b/d in 2024, and by 210,000 b/d to 83.4 million b/d in 2025, achieving annual increases of 5.4 million b/d and 6.1 million b/d, respectively.

In August, global oil inventories fell by 22.3 million barrels, of which crude oil inventories fell by 16.5 million barrels. The Organization for Economic Cooperation and Development (OECD) industrial inventories fell by 13.4 million barrels counterseasonally to 2,811 million barrels, which is 102.7 million barrels below the five-year average. Preliminary data showed a further decline in oil stocks in September. Relatively strong refining activity and OPEC+ production cuts have reduced crude oil inventories by 135 million barrels since May, while stocks of refined oil products increased by 35 million barrels during the same period.

Brent crude oil futures rose by $8/bbl in early October as markets closely watched Israel's response to Iran's missile attack. Investors' cancellation of super-bearish trading positions also boosted the price rebound. Prior to that, prices fell to a multi-year low in September due to expectations of abundant supply in the market in 2025. At the time of writing the report, Brent crude oil was trading at around $78 per barrel.

Oil safety becomes the focus

Benchmark oil prices rebounded sharply in early October, and oil supply risks once again became the focus. Tensions between Israel and Iran have increased, raising concerns about the wider Middle East conflict and the interruption of Iran's exports. However, the political dispute in Libya has been resolved, and the situation that led to a brief halving of its oil exports has also been mitigated. Although the hurricane along the Gulf Coast of the United States had a certain impact on oil production, the losses were relatively moderate. Coupled with weak end user demand, the market situation gradually stabilized. At the time of writing this report, Brent crude oil futures traded at around $78 per barrel, up 8 US dollars/barrel from the previous month, but still more than 10 US dollars/barrel lower than the same period last year.

The sharp rise in oil prices earlier this month stemmed from market concerns about Israel's next steps, particularly whether Iran's critical energy infrastructure will be targeted. Iran's main export terminal, Kharg Island (Kharg Island), produces 1.6 million barrels per day and mainly supplies China, making it one of the focuses of attention. Similarly, there are concerns about the potential spillover effects of the Strait of Hormuz, a strategic waterway. Although oil exports from Iran and neighboring countries are currently unaffected, the market is still highly tense, awaiting further developments. Meanwhile, crude oil transportation in Libya has resumed, and oil exports, which were previously interrupted due to political disputes, have been resolved through difficult negotiations to reach an agreement. On the other hand, US activity during this year's hurricane season was higher than normal, and there are still six weeks left.

Against the backdrop of heightened security risks to the oil supply, the global market supply situation is still relatively abundant — we have emphasized this for quite some time. Global oil demand is expected to grow by less than 900,000 b/d in 2024 and about 1 million b/d in 2025, far lower than the 2 million b/d increase in 2023. In particular, China's oil demand performance was weak. Consumption fell 500,000 b/d year on year in August, the fourth consecutive month of decline. Meanwhile, non-OPEC+ oil supply, led by American countries, continues to grow steadily, and production is expected to increase by about 1.5 million b/d this year and next. The US, Brazil, Guyana and Canada are expected to contribute most of the increase, and production will increase by more than 1 million b/d within two years, which is enough to cover the expected increase in demand.

Excluding Libya, Iran, and Russia, OPEC+'s idle production capacity is at an all-time high (with the exception of special periods during the COVID-19 pandemic). In September, OPEC+'s effective idle production capacity easily exceeded 5 million b/d. Global oil inventories provided a further buffer, although in the past four months, global crude oil inventories fell by 135 million barrels, the lowest level since at least 2017, and OECD industry inventories are also far below the five-year average. However, the global inventory of refined products has risen to a three-year high, putting pressure on the profits of major refining centers.

As the supply situation evolves, the IEA is ready to act if necessary. As in 2022, the IEA and its member states can act quickly collectively. The IEA alone has more than 1.2 billion barrels of public inventory, and an additional 500 million barrels of inventory under industry obligations. China also holds 1.1 billion barrels of crude oil in stock, which is enough to cover the current 75-day operating demand of domestic refineries. Currently, oil supply continues to flow, and if there is no major interruption, the market will face a large surplus next year.