Oil prices are likely to continue falling, according to Fatih Birol, head of the International Energy Agency (IEA), as global producers pump more oil than is currently being demanded.
“With weak demand and an increase in oil supply from non-OPEC countries, especially the U.S. and others, we may see continued downward pressure on prices,” Birol said.
His comments come after a volatile two weeks in the oil markets. Brent crude, the global oil benchmark, dropped by more than $10 per barrel, sinking below $70 on Tuesday for the first time in almost three years.
Traders and speculators have become increasingly pessimistic in recent weeks, largely due to concerns over slowing economic growth in China and the U.S. This shift in sentiment has prompted OPEC to delay plans to reverse cuts of more than 2 million barrels per day.
Birol’s remarks followed the release of the IEA’s latest monthly report, which highlighted that global oil demand during the first half of the year grew at its slowest rate since the COVID-19 pandemic.
“The main reason for the slowdown is China,” Birol said. “Over the past decade, around 60% of global oil demand growth came from China. Now, with the Chinese economy slowing, this has a big impact.”
China’s move toward clean energy is also reducing demand for fossil fuels. “The strong uptake of electric vehicles and improvements in fuel efficiency are contributing to the substantial decline in oil prices,” Birol added.
Despite geopolitical tensions and production disruptions that would typically support oil prices, the market has remained weak. “This is happening even as Libya’s oil production of 1.2 million barrels per day is halted, and with ongoing conflict in the Middle East,” Birol said.
Last year, Birol predicted that the demand for fossil fuels would peak this decade. The IEA now expects oil demand to grow by an average of 900,000 barrels per day this year, a significant drop from last year’s increase of more than 2 million barrels per day. Total oil consumption is forecast to reach 103 million barrels per day in 2023.
When the IEA first lowered its forecasts 15 months ago, it faced criticism for being overly pessimistic. However, with only three months left in the year, Birol said the agency’s predictions have proven accurate.
“We received pushback from some quarters, with claims that our figures were influenced by an overly optimistic view of the energy transition,” Birol noted.
OPEC had previously criticized the IEA, accusing it of promoting an “anti-oil” narrative. The IEA is part of the OECD and was established to ensure energy security for developed nations.
Looking ahead, Birol said lower oil prices could help revive demand next year. However, challenges such as slower growth in China and the rise of electric vehicles will continue to affect demand. On Thursday, Brent crude was trading at around $71.50 per barrel.
“Our forecast of 950,000 barrels per day of growth for next year includes a potential rebound in demand due to lower prices,” Birol said.
Despite this, excess supply is expected to persist as non-OPEC producers, such as the U.S., Brazil, Guyana, and Canada, continue to pump oil at higher rates. “We anticipate production growth from these countries at around 1.1 million barrels per day,” Birol added.
When asked about OPEC’s plan to increase quotas starting in December, Birol responded, “That decision is entirely up to the group. However, it’s important to note that we currently have 6 million barrels per day of spare production capacity – one of the highest levels in history. This is something OPEC’s policies must take into account.”