Oil prices will continue to fall as demand falls, says IEA chief

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Oil prices will continue to fall, the head of the International Energy Agency said, as producers continue to pump volumes that exceed global demand.

“Given the current weak demand and a lot of oil coming from non-OPEC countries, mainly America and others, we may see downward pressure on the price,” Fatih Birol said.

The bearish comments come after two turbulent weeks in oil markets, with the price of benchmark Brent crude falling more than $10 a barrel to below $70 on Tuesday for the first time in nearly three years.

The mood among traders and speculators has turned sharply in recent weeks amid weaker growth in China and the US, prompting OPEC to delay a plan to begin reversing cuts of more than 2 million barrels a day. Birol spoke as the IEA released its latest monthly oil market report, which noted that oil demand in the first six months of the year grew at the slowest pace since the Covid-19 pandemic.

The main reason for the slower growth of the oil market is China, he said. “Over the past 10 years, about 60% of the growth in global oil demand has come from China. Now the Chinese economy is slowing down,” Birol said.

China’s rapid adoption of clean energy has also affected demand for fossil fuels. “There is a very strong deployment of electric vehicles and an improvement in fuel efficiency. As a result, the price of oil has fallen substantially,” he added.

Birol noted that oil markets have bounced back despite geopolitical tensions and production shutdowns that would normally support prices. “We should also consider that this is happening against the backdrop of the shutdown of Libya’s 1.2 million b/d oil production and a war in the Middle East,” he said.

A year ago, Birol wrote in the Financial Times that demand for fossil fuels will peak this decade. The IEA sees oil demand growing at a slower average pace this year of 900,000 b/d, compared to growth of more than 2 million b/d in 2023. Total oil consumption will reach 103 million b/d day this year, the release states.

When it first cut its forecasts 15 months ago, the agency was widely criticized for being too dovish, but with just three months left in the year, Birol said it had been proven right.

“We’ve had some pushback from some quarters with suggestions that our numbers were the result of delusions in the energy transition,” Birol said.

OPEC accused the IEA of peddling a “dangerous”, “anti-oil” narrative. The IEA is a component of the OECD think-tank that was established to ensure energy security for developed economies.

Birol said lower oil prices could revive demand next year, but there would still be headwinds from slower growth in China and the continued adoption of electric cars around the world. Brent was trading around $71.50 on Thursday.

“Our forecast for (increase of) 950,000 b/d next year takes into account some recovery in oil demand as a result of lower prices,” he said.

But the oversupply in the market will continue as non-OPEC producers will continue to pump oil above this rate. “We are seeing an increase in production (only) from the US, Brazil, Guyana and Canada by 1.1 million b/d,” Birol said.

Asked if OPEC could start raising its quotas, as it plans to do from December, he said: “It completely depends on (the group). But one thing is clear. We currently have 6 million b/d of spare production capacity. It is one of the highest in history and it is an issue that OPEC policies must take into account.”