IEA warns world faces oil surplus in 2025 on weak demand

Nov 15, 2024 News

---

…as Jagdeo dismisses impacts on Guyana’s earnings   

Kaieteur News- Global oil supply will exceed demand in 2025 even if Opec+ cuts remain in place, the International Energy Agency (IEA) said on Thursday, as rising production from the United States and other outside producers outpaces sluggish demand.

However, despite these warnings, Vice President, Bharrat Jagdeo recently said Guyana would not be impacted and even downplayed a similar report by the World Bank on the matter.

Reuters reported that the prospect of a more than 1 million barrels per day (bpd) excess supply – equal to over 1 per cent of world output – is a headwind for Opec+, which comprises the Organisation of the Petroleum Exporting Countries and allies such as Russia – in its plan to start raising output. Oil demand growth has been weaker than expected this year in large part because of China. After driving rises in oil consumption for years, economic challenges and a shift towards electric vehicles are tempering oil growth prospects in the world’s second-largest consumer.

“China’s marked slowdown has been the main drag on demand,” the IEA said in its monthly oil market report. “Rapid deployment of clean energy technologies is also increasingly displacing oil in transport and power generation, adding downward pressure to otherwise weak demand drivers,” the report added.

The Paris-based agency left its 2025 oil demand growth forecast little changed at 990,000 bpd. At the same time, it expects non-Opec+ nations to boost supply by 1.5 million bpd, driven by the United States, Canada, Guyana and Argentina – more than the rate of demand growth.

Next year’s surplus, as forecast by the IEA, could make it harder for Opec+ to bring back production. Earlier this month, Opec+ again postponed a plan to start easing output cuts amid falling prices. “Our current balances suggest that even if the Opec+ cuts remain in place, global supply exceeds demand by more than 1 million bpd next year,” the IEA said. Oil prices traded slightly weaker after the report was released, with Brent crude trading below $73 a barrel.

2024 demand up

The IEA also made a slight upward adjustment to its 2024 oil demand growth forecast of 60,000 bpd on the month to 920,000 bpd, on higher than expected gasoil demand. “The sub-1 million bpd growth pace for both years reflects below-par global economic conditions with the post-pandemic release of pent-up demand now complete,” the IEA said. Forecasts on the strength of demand growth in 2024 vary widely, partly due to differences over demand from China and the pace of the world’s switch to cleaner fuels, and the IEA’s view is at the lower end of industry estimates. Opec, which is at the top end, on Tuesday cut its demand growth forecasts for this year and next, but still expects much more rapid growth than the IEA of 1.82 million bpd and 1.54 million bpd, respectively. According to the IEA, Chinese demand growth is set to reach just 140,000 bpd this year, a tenth of the 1.4 million bpd demand growth of 2023.

Jagdeo dismisses concerns

Only two weeks ago Jagdeo dismissed concerns raised by the World Bank regarding a potential decline in global oil prices due to an anticipated oversupply. The World Bank’s latest Commodity Markets Outlook report, forecasted that an oil glut, and other factors, may lead to a substantial drop in global prices, and an oversupply in the coming years.

Addressing the matter at his weekly press conference at Freedom House, Robb Street, Georgetown, Jagdeo had criticiszed the relevance of such forecasts to Guyana’s oil prospects. Kaieteur News had reported that the World Bank’s latest Commodity Markets Outlook report raised doubts about the Vice President’s projections of substantial future revenue for Guyana. Jagdeo has suggested that by not implementing a ring-fencing provision for the oil projects in the Stabroek Block which is operated by ExxonMobil Guyana Limited (EMGL); the country is strategically foregoing short-term benefits to reap greater long-term gains. In simple terms, a ring-fencing provision in an oil contract ensures that each oil project is financially independent, meaning it can only use its revenue to cover its own costs.

Based on his previous comments, Jagdeo was asked whether the World Bank’s forecast changes his position on the lack of ring-fencing provisions for the oil projects in the Stabroek Block. In his response, Jagdeo downplayed the bank’s influence on oil market insights. He highlighted Guyana’s low production costs and the high quality of its crude.  Oil is currently being produced from the Stabroek Block, which is operated by ExxonMobil Guyana Limited (EMGL). Daily production is over 650,000 barrels per day (bpd) from just three projects in that block.

“Often people who are uninitiated, they put a lot of store on these IFIs (international financial institutions) and the reports they produce. For people who are actually in the sector, they pay scant regard to those reports,” he said.

The Vice President added that oil market projections require more specialized focus than what the World Bank typically provides. “So if you ask any of the oil majors around the world about this World Bank report, economic outlook report, they probably wouldn’t even know about it. Nobody pays attention to this,” he said.

Jagdeo argued that the dynamics of the oil market are highly complex and sensitive to a myriad of factors, including geopolitical events. “Oil markets are very fickle in nature,” he said, adding, “You may have a glut today, but you have a shortage in the future.”

The Vice President then pointed to potential global disruptions, such as a hypothetical escalation in conflicts involving key oil producers or major incidents in international shipping lanes, as factors that could swiftly alter supply-demand balances and impact prices.

Jagdeo also criticized the World Bank’s report for its lack of specificity, noting that seasoned industry experts conduct daily assessments that consider real-time developments in the oil market. “So oil is just a small part of it, but there are agencies that every single day put out a report, and they have a more nuanced understanding of oil markets, because they live that sector on a daily basis,” he said. To this end, he added that the World Bank’s analyses generally cover a broader economic scope without providing the same level of detail on  oil as specialized industry reports. It should be noted that while the Vice President did not dismiss the possibility of market challenges altogether, he underscored that Guyana’s oil industry is well-positioned to withstand potential price declines. Reflecting on Guyana’s strategic advantage, Jagdeo emphasized that the country’s light, sweet crude oil—widely regarded for its quality—combined with low production costs of about US$40 per barrel, puts it in a stronger position than many other oil-producing nations. (This REUTERS article was modified)

(IEA warns world faces oil surplus in 2025 on weak demand)

---

• Global oil supply, International Energy Agency, rising production, United States

---