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Oil costs are prone to maintain falling, the pinnacle of the Worldwide Vitality Company has mentioned, 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,” mentioned 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 under $70 on Tuesday for the primary time in almost three years.
The temper amongst merchants and speculators has turned sharply in latest weeks on fears of weaker development in China and the US, prompting Opec to delay a plan to start out reversing greater than 2mn barrels a day of cuts. Birol spoke because the IEA launched its newest month-to-month report on the oil market, which famous that oil demand within the first six months of the yr grew on the slowest tempo because the Covid-19 pandemic.
The primary purpose for the slower development of the oil market is China, he mentioned. “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 mentioned.
China’s speedy embrace of fresh power 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 will usually prop up costs. “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 mentioned.
One yr in the past, Birol wrote within the Monetary Instances that the demand for fossil fuels would peak this decade. The IEA believes that oil demand is rising at a slower common price this yr of 900,000 b/d, in contrast with a rise of greater than 2mn b/d in 2023. Whole oil consumption will attain 103mn b/d this yr, it mentioned.
When it first reduce its forecasts 15 months in the past, the company was extensively criticised for being too bearish however, with solely three months of the yr left, Birol mentioned 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 mentioned.
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 make sure power safety for developed economies.
Birol mentioned decrease oil costs might revive demand subsequent yr, however there would nonetheless be headwinds from slower development in China and the additional take-up of electrical vehicles internationally. 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 mentioned.
However the extra provide out there 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,” mentioned Birol.
Requested if Opec would be capable to begin growing its quotas, because it plans to from December, he mentioned: “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.”
