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Oil prices are seemingly to keep falling, the head of the International Energy Agency has stated, as producers proceed to pump volumes that exceed international demand.
“Given the current weak demand and lots of oil coming from the non-Opec countries, mainly from America and others, we may well see downward pressure on the price,” stated Fatih Birol.
The bearish feedback come after a turbulent fortnight in oil markets, with the value of benchmark Brent crude falling by greater than $10 a barrel to tumble beneath $70 on Tuesday for the primary time in practically three years.
The temper amongst merchants and speculators has turned sharply in current weeks on fears of weaker progress in China and the US, prompting Opec to delay a plan to begin reversing greater than 2mn barrels a day of cuts. Birol spoke as the IEA launched its newest monthly report on the oil market, which famous that oil demand within the first six months of the 12 months grew on the slowest tempo for the reason that Covid-19 pandemic.
The important motive for the slower progress of the oil market is China, he stated. “In the last 10 years, around 60 per cent of global oil demand growth has come from China. Now the Chinese economy is slowing down,” Birol stated.
China’s fast embrace of fresh energy was additionally weighing on fossil gas demand. “There is a very strong deployment of electric vehicles and improvement in fuel efficiency. As a result, the oil price fell substantially,” he added.
Birol famous that the oil markets had turned regardless of geopolitical tensions and manufacturing shutdowns that might usually prop up prices. “We should also consider this is happening in the context of Libya’s oil production of 1.2mn b/d being shut down and a war in the Middle East,” he stated.
One 12 months in the past, Birol wrote within the Financial Times that the demand for fossil fuels would peak this decade. The IEA believes that oil demand is rising at a slower common price this 12 months of 900,000 b/d, in contrast with a rise of greater than 2mn b/d in 2023. Total oil consumption will attain 103mn b/d this 12 months, it stated.
When it first reduce its forecasts 15 months in the past, the company was broadly criticised for being too bearish however, with solely three months of the 12 months left, Birol stated it had proved correct.
“We got some pushback from some corners with suggestions that our numbers were a result of some energy transition wishful thinking,” Birol stated.
Opec had accused the IEA of peddling a “dangerous”, “anti-oil” narrative. The IEA is an arm of the OECD think-tank that was arrange to guarantee energy safety for developed economies.
Birol stated decrease oil prices may revive demand subsequent 12 months, however there would nonetheless be headwinds from slower progress in China and the additional take-up of electrical vehicles the world over. Brent was buying and selling at about $71.50 on Thursday.
“Our forecast for [growth of] 950,000 b/d for next year does consider some rebound of oil demand as a result of lower prices,” he stated.
But the surplus provide available in the market will proceed as a result of non-Opec producers will proceed to pump oil above that price. “We see production growth [just] from the US, Brazil, Guyana and Canada at 1.1mn b/d,” stated Birol.
Asked if Opec would give you the chance to begin rising its quotas, as it plans to from December, he stated: “It is completely up to [the group]. But one thing is clear. We currently have 6mn b/d of spare production capacity. It is one of the highest in history and it is an issue that the policies of Opec needs to consider.”