IEA says Record US Supply Squeezing Saudis Out of Prime Markets

Paris-based International Energy Agency IEA in its latest monthly Oil Market Report Tuesday cut fourth-quarter demand growth by 400,000 barrels a day. The agency also said record US crude oil supply is squeezing Saudi Arabia out of prime markets. This is in line with the angst between the cartel members at the recent OPEC+ meeting and the failure to push oil prices significantly higher or see US production fall. Global oil demand growth is slowing sharply as economic activity weakens in key countries, the International Energy Agency said as it slashed estimates for this quarter.

The IEA continues to expect growth rates will decelerate dramatically next year. Soaring production from the US, Brazil and Guyana is offsetting production cuts by Saudi Arabia and its OPEC+ allies, it said. The Chinese reboot after Covid Zero has not gone as IEA and OPEC had hoped.

Evidence of a slowdown in oil demand is mounting. “The increasingly apparent loss of oil demand growth momentum reflects the deterioration in the macroeconomic climate.”

Crude prices fell to a five-month low below $73 a barrel in London earlier this week on signs of growing oversupply. Oil futures have fallen around 23% since late September as China’s economic outlook darkens while output grows from a number of exporters.

Fresh production cutbacks announced by OPEC+ on Nov. 30 look set to eliminate a glut previously anticipated in the first quarter, but they come at a cost for the OPEC cartel. OPEC+ will see its share of the global market fall to the lowest level since its formation seven years ago, the IEA said.

We are seeing unexpected consequences by keeping prices higher, north of $70/bbl EIA points out they are helping finance a “record-smashing” supply wave from the US, which is “squeezing Saudi Arabia and other core Middle Eastern producers out of prime export markets,” the report said.

US oil production exceeded 13 million barrels a day in the latest report, defying predictions.

“The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices,” the IEA said.

Within OPEC a significant supply rebound from Iran is also buffering curbs by other members. Europe, Russia and the Middle East drove the EIA’s downgrade of fourth-quarter demand estimates. Europe was “particularly soft amid the continent’s broad manufacturing and industrial slump,” the IEA said. Higher interest rates are also a headwind, the agency noted. Though it should be noted the Federal Reserve is looking a little more Dovish.

Global oil demand growth remains on track to increase by a substantial 2.3 million barrels a day this year to average a record 101.7 million a day, bolstered by the remnants of the post-pandemic rebound in consumption. Yet growth will slow by roughly 50% next year to 1.1 million barrels a day as that rebound peters out, and consumers turn to more efficient or electric vehicles. The rise in consumption can probably be satisfied by a similar increase in non-OPEC+ supplies, the agency said. via Bloomberg

Such a demand slowdown would help put countries on the path agreed at COP28 climate talks in the United Arab Emirates this week, which culminated in a pledge to transition away from fossil fuels.

OPEC the day before published it’s outlook for the year ahead.

From The TradersCommunity US Research Desk