The Oil Market Surplus May Be Smaller Than Feared
Oil market forecasters such as the International Energy Agency (IEA) may have been too pessimistic about supply-demand balances in their latest assessments, which show a large surplus for 2025.
Actual global oil inventory trends in the third quarter look much more bullish than the IEA’s balances and projections, the agency’s latest oil market report showed.
Stock draws have accelerated in recent months, with withdrawals bigger than previously expected, leaving a large gap of “unaccounted for”, or “missing barrels” in the projections.
This wide gap between inventory levels and IEA forecasts could soon prompt the agency to revise up its demand forecasts, analysts say.
For months, the IEA has struck a bearish tone and warned of a large surplus coming to the market in 2025. Per the agency’s monthly Oil Market Report (OMR) from last week, global supply is set to exceed demand by more than 1 million barrels per day (bpd) next year.
Weak Chinese demand, the resumption of full-capacity oil production in Libya, and the planned unwinding of the OPEC+ production cuts are “all foreshadowing a well-supplied oil market in 2025,” the IEA said.
However, global inventories have been drawing down at a much larger rate than the IEA has expected.
The agency noted in its November report sharp inventory drawdowns in observed global oil stocks.
Global oil inventories plunged by 47.5 million barrels in September to their lowest level since January, led by a sharp draw in OECD oil products and non-OECD crude oil stocks, the IEA said. OECD industry stocks fell by 36.4 million barrels to 2.8 billion barrels, which was 95.3 million barrels below the five-year average. Provisional data suggest total global stocks decreased for a fifth consecutive month in October, according to the IEA.
Preliminary data for the third quarter showed that global oil stocks fell at a rate of around 1.16 million bpd.
However, the agency had previously set in its balance projections drawdowns of just 380,000 bpd during the July-September period, according to the IEA figures compiled by Bloomberg.
The large gap between actual drawdowns and the much smaller declines expected by the agency likely reflects trends in inventories in countries where data is missing or isn’t very good, the IEA tells Bloomberg.
Ultimately, the IEA may have to revise upwards its demand estimates and come up with a less bearish outlook for oil market balances for 2025, according to analysts.
“My expectation is that the demand forecasts will be revised higher, and that the agency’s balances will look less bearish,” UBS Group commodity analyst Giovanni Staunovo told Bloomberg.
Forecasters other than the IEA see a strong drawdown in global oil stocks in July-September.
The U.S. Energy Information Agency (EIA) estimates in its November Short-Term Energy Outlook (STEO) that global oil inventories fell by 900,000 bpd in the third quarter. The implied stock draw was the biggest since the fourth quarter of 2021 when pent-up demand following Covid restrictions was driving large inventory draws.
The international agency, for its part, found that global inventories fell by 1.16 million bpd in the third quarter of 2024. That’s three times higher than its forecast of a 380,000 bpd decline.
To recalibrate the mismatch, the IEA may have to revise its demand projections higher. That’s a common practice—every forecaster makes historical revisions as it tries to align demand projections with real-world realities.
In its November report, the agency said that while demand is sluggish, global oil supply is rising “at a healthy clip.” The United States will continue to lead non-OPEC+ supply growth of 1.5 million bpd in both 2024 and 2025, along with higher output from Canada, Guyana, and Argentina.
“Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 mb/d next year,” the IEA said.
With observed inventories falling at much steeper rates in Q3, the large surplus next year could be smaller than expected.