OPEC Boost to Lead to Oil Market Surplus

The IEA has stated that due to summer demand in the United States, the global oil market is currently experiencing a shortage, with the key point for the future market being OPEC+...

Data from the International Energy Agency (IEA) shows that if OPEC+ continues to implement plans to increase supply, the global oil market will shift from a supply shortage to a surplus in the next quarter.

The agency said in its report that due to the peak in summer driving demand, oil inventories are currently decreasing but will stabilize in the fourth quarter of this year.

The report pointed out that if OPEC+ continues with its plan to resume idle production capacity starting in October, this could lead to a supply surplus. The IEA stated: "Despite a significant slowdown in the growth of China's oil demand, OPEC+ has not yet halted its plan to gradually cancel voluntary production cuts starting from the fourth quarter." The agency provides consultation for major economies.

Led by Saudi Arabia and Russia, OPEC+ has outlined a "blueprint" to resume production of about 543,000 barrels/day in the fourth quarter of this year, but emphasized that this plan could be "paused or reversed," depending on market conditions. This decision could be made in the coming weeks.

Due to the peak in summer driving and concerns over escalating geopolitical tensions in the Middle East, crude oil prices have fluctuated recently, with Brent crude futures trading close to $80 per barrel.

The IEA stated, "At present, supply is struggling to keep up with peak summer demand, leading to a market supply shortage. As a result, global inventories are affected." Inventories decreased by 26.2 million barrels in June.

"Significant Shift"

The IEA observed that demand growth in developed economies such as the United States unusually compensated for the lack of demand in other emerging countries.

The agency said, "A significant shift in driving factors is emerging. The U.S. economy consumes one-third of the world's gasoline, and its performance is superior to other economies, with the resilience of the service industry supporting vehicle mileage."However, the current tensions in the global oil market are expected to subside. The International Energy Agency (IEA) has stated that even if OPEC+ cancels its planned production increase, global inventories will still accumulate at an astonishing rate of 860,000 barrels per day next year, due to a surge in supply from the United States, Guyana, and Brazil.

Traders and analysts are divided on whether OPEC+ will continue to increase production, as crude oil prices are too low for many OPEC+ member countries to cover their domestic fiscal expenditures. In another report released by OPEC on Monday, it lowered its forecast for oil demand growth in 2024 for the first time, citing weak demand in Asia. It is noteworthy that its demand growth forecast is still more than double the speed expected by the IEA.

The IEA estimates that global consumption will only grow by less than 1 million barrels per day, or about 1%, this year and next year, due to a weak economic backdrop and the shift towards electric vehicles. The agency estimates that demand will average 103.1 million barrels per day in 2024 and 104 million barrels per day in 2025.