Oil Market Report - October 2024

• World oil demand is on track to expand by just shy of 900 kb/d in 2024 and close to 1 mb/d in 2025, marking a sharp slowdown on the roughly 2 mb/d seen over the 2022-2023 post-pandemic period. China underpins the deceleration in growth, accounting for around 20% of global gains both this year and next year, compared to almost 70% in 2023.
• Global oil supply plunged by 640 kb/d in September to 102.8 mb/d, with Libya’s political quagmire disrupting the country’s oil production and exports, and as field maintenance work in Kazakhstan and Norway lowered output. Non-OPEC+ supply growth of around 1.5 mb/d this year and next is led by the Americas, accounting for 80% of gains.
• Refining margins slumped further in September as gasoline, jet and diesel cracks deteriorated while crude prices improved on a relatively tighter market. As a result, global crude run estimates are further reduced by 180 kb/d to 82.8 mb/d for 2024 and by 210 kb/d to 83.4 mb/d in 2025, representing annual gains of 540 kb/d and 610 kb/d, respectively.
• Observed global oil inventories declined by 22.3 mb in August, led by a 16.5 mb draw in crude oil stocks. OECD industry stocks fell counter-seasonally by 13.4 mb to 2 811 mb, 102.7 mb below the five-year average. Preliminary data suggest oil stocks fell further in September. Relatively robust refining activity and OPEC+ supply cuts have underpinned a 135 mb draw in crude stocks since May, while product stocks built by 35 mb over the same period.
• Brent crude futures rallied $8/bbl in early October, with markets on tenterhooks about Israel’s response to Iran’s missile attack. The unwinding of ultra-bearish investor exchange positioning contributed to the price rebound. Prices had slumped to multi-year lows in September, driven by the prospect of an amply supplied market in 2025. At the time of writing, Brent was trading at around $78/bbl.
  

Benchmark oil prices bounced sharply higher in early October, as potential oil supply risks once again took centre stage. Escalating tensions between Israel and Iran are fuelling fears of a broader Middle East conflict and disruptions to Iranian exports. Nevertheless, the resolution of a political dispute in Libya that briefly cut its oil exports in half, relatively modest production losses due to major hurricanes sweeping the US Gulf Coast and weak end-user demand have helped to steady markets. At the time of writing, Brent crude oil futures were trading at around $78/bbl, up $8/bbl from last month but more than $10/bbl lower than a year ago.

Prices spiked earlier this month with the market now focused on Israel’s next move, and questions over whether key Iranian energy infrastructure could be targeted. The country’s main Kharg Island export terminal that ships 1.6 mb/d of crude, primarily to China, is a major concern as is the potential spillover to the strategic Strait of Hormuz waterway. For now, oil exports from Iran and neighbouring countries are unaffected but the market remains on tenterhooks, awaiting the next developments in the crisis. At the same time, Libyan crude shipments have resumed, following the hard-won agreement that resolved the political dispute that had disrupted oil exports. On the other hand, the above-normal US hurricane season still has six weeks to go.

Heightened oil supply security concerns are set against a backdrop of a global market that – as we have been highlighting for some time – looks adequately supplied. Global oil demand is expected to grow by just under 900 kb/d in 2024 and by around 1 mb/d in 2025, significantly lower than the 2 mb/d seen in 2023. Chinese oil demand is particularly weak, with consumption dropping by 500 kb/d y-o-y in August – its fourth consecutive month of declines. At the same time, non-OPEC+ oil supply, led by the Americas, continues to make robust gains of around 1.5 mb/d this year and next. The United States, Brazil, Guyana and Canada are set to account for most of the increase, boosting output by over 1 mb/d both years, which will more than cover expected demand growth.

OPEC+ spare production capacity stands at historic highs, barring the exceptional period of the Covid-19 pandemic. Excluding Libya, Iran and Russia, effective spare capacity comfortably exceeded 5 mb/d in September. Global oil stocks provide a further buffer, even as observed crude oil inventories drew by 135 mb over the past four months to their lowest since at least 2017 and OECD industry stocks remain well below their five-year average. But global refined product stocks have swelled to three-year highs, pressuring margins across key refining hubs.

As supply developments unfold, the IEA stands ready to act if necessary. As shown in 2022, the Agency and its member countries can quickly take collective action. IEA public stocks alone are over 1.2 billion barrels, with an additional half a billion barrels of stocks held under industry obligations. China holds a further 1.1 billion barrels of crude oil stocks, enough to cover 75 days of domestic refinery runs at current rates. For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizeable surplus in the new year.