Global oil prices have fallen by nearly $3.50 a barrel due to ongoing worries about a slowdown in China and reduced fears of an Israeli attack on Iran’s energy facilities.
Israeli Prime Minister Benjamin Netanyahu has reportedly assured the White House that retaliation against Iran, following its missile attack earlier in October, will not target oil export terminals or nuclear sites. Such attacks could lead to significant increases in oil prices.
This news, first reported by the Washington Post, has eased market fears and contributed to a decline in oil prices, which dropped from nearly $78 a barrel at the beginning of the week to below $74 on Tuesday.
Oil prices have fluctuated due to rising tensions in the Middle East, reaching just over $80 a barrel earlier this month. However, they remain well below last year’s average of about $82.50.
The decline in prices has been driven by weaker-than-expected global oil demand this year, largely due to China’s slowing economy. Recent fiscal measures by Beijing have raised concerns that they may not be sufficient to boost economic growth for the world’s largest oil importer.
This week, oil prices fell further after OPEC and its allies, known as OPEC+, cut their forecasts for global oil demand growth for 2024 and 2025 for the third consecutive month.
The International Energy Agency (IEA), in its monthly report released on Tuesday, warned that the slowdown in oil demand, combined with an oversupply of crude, could lead to a significant surplus in the market next year.
The Paris-based agency reassured the market that any potential disruption to Iran’s oil exports could be managed. Oil storage levels have reached over 1.2 billion barrels, and OPEC+ countries currently have historic levels of spare production capacity.
“As supply developments unfold, the IEA stands ready to act if necessary,” the agency stated. “For now, supply keeps flowing, and without a major disruption, the market faces a sizeable surplus in the new year.”
The IEA has lowered its forecast for world oil demand growth this year to 860,000 barrels per day (bpd), a reduction of 40,000 bpd from its previous estimate. For next year, it projects a demand increase of 1 million bpd, about 50,000 bpd more than anticipated last month. The IEA has consistently cautioned that slower economic growth in China and a shift towards electric vehicles will weaken oil demand from the world’s second-largest economy.
It expects Chinese oil demand to grow by only 150,000 bpd in 2024, following a consumption drop of 500,000 bpd in August compared to the same month last year, marking the fourth consecutive month of declines.
“Chinese oil demand continues to fall short of expectations and is the main factor dragging down overall growth,” the IEA noted.
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