Oil supply could possibly reach a surplus if OPEC+ decides to make due on their promise of restoring oil production in October, a new report from the International Energy Agency shows.
Earlier this summer, the oil bloc had outlined a plan to relieve some of their production cuts, starting in October. And while inventories are currently struggling to keep pace with the demand of the summer driving season, tipping the market into a deficit, supply is expected to stabilize in the coming months, according to the IEA’s August oil markets report .
This would likely create a surplus, as oil consumption in China has slowed, and non-OPEC+ countries such as the United States, Guyana, Canada, and Brazil are increasing their supply that would cover expected demand.
“Despite the marked slowdown in Chinese oil demand growth, OPEC+ has yet to call time on its plan to gradually unwind voluntary production cuts starting in the fourth quarter,” the report said.
OPEC+ had detailed a plan to restore production of 543,000 barrels a day during the fourth quarter, but the group warned these plans could be “paused or reversed” depending on market conditions. However, the report notes that even if the production boost is put on ice, the current balance suggests global supplies could build by an average of 860,000 barrels per day next year, as non-OPEC+ supply increases to around 1.5 million barrels per day in 2024 and 2025.
The uncertainty of OPEC+’s next move makes it hard to say whether oil prices will get further relief from the restoration of production. As the driving season slows down heading into the fall, gas prices are set to drop, but whether they will further decline remains to be seen. Plus, gas prices are an evergreen election issue, and will be closely watched heading into the November election.
“If OPEC [moves] ahead with restoring some of their production, that could put more downward pressure on that seasonal trend of declining prices,” said Patrick De Haan, the head of petroleum analysis at GasBuddy. “I don't think it would be a significant boost to gas prices, which would likely already be falling.”
Oil markets, overall, have exhibited “Olympic levels of volatility” over the last couple of weeks, the IEA states, with the economy roiling the market and geopolitical tension in the Middle East further constraining supply.
“For now, supply is struggling to keep pace with peak summer demand, tipping the market into a deficit,” the report said. “As a result, global inventories have taken a hit.”
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In a separate report released Monday , OPEC lowered projections for world demand growth for the first time, citing softening expectations for China’s oil demand growth in 2024. Its projections, however, are still higher than other industry estimates.
A decision on whether OPEC will move forward in restoring oil production will be made in the coming weeks — but a weaker global economy could encourage OPEC to push back their timeline of restoring oil production, De Haan told the Washington Examiner.
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