The International Energy Agency (IEA) has issued a stark warning to oil markets, revealing that crude supply is exceeding demand by 600,000 barrels per day (bpd). The agency also downgraded its demand forecast for the year, signaling potential challenges for oil prices. The IEA’s concerns are echoed by major oil traders, who are growing increasingly bearish as production levels rise both within and outside the Organization of the Petroleum Exporting Countries (OPEC).
Gunvor chairman Torbjörn Törnqvist highlighted the issue at CERAWeek, telling Bloomberg, “The industry is over-drilling now, that is clear. We are drilling more inside and outside OPEC than demand growth warrants.”
Production on the Rise
Recent data confirms this trend. The U.S. Energy Information Administration (EIA) projects that U.S. crude production will increase by 400,000 bpd this year, reaching 13.6 million bpd. This will further cement the United States’ position as the world’s top oil producer and add to downward pressure on prices.
OPEC+ members are also contributing to the supply glut. While the group has production quotas in place, some members are exceeding their limits. In February, Kazakhstan produced an average of 1.767 million bpd, surpassing its quota of 1.468 million bpd. Nigeria also exceeded its limit, producing 70,000 bpd more than its assigned cap.
Economic Uncertainty and Demand Concerns
On the demand side, uncertainty over U.S. trade policies is raising concerns. Tariffs imposed by the Trump administration, particularly on steel and aluminum, could impact oil and gas industry costs. There are also worries that tariffs could slow economic activity and reduce demand for crude oil, though the overall effect is expected to be limited.
The refining sector in the United States is also undergoing changes. This year, about 400,000 bpd in refining capacity is set to shut down, which could leave more crude available on the market. Additionally, refineries in Los Angeles and Houston are scheduled for closure in 2025, further contributing to potential oversupply.
Oil Prices Could Fall Below $60 Per Barrel
Vitol CEO Russell Hardy predicts that oil prices may decline further, stabilizing between $60 and $80 per barrel. He also warned that West Texas Intermediate (WTI) crude could temporarily dip below $60, though he expects any such decline to be short-lived. Historically, excessive drilling has led to price drops, prompting natural corrections in the market.
Meanwhile, Jeff Currie, a former Goldman Sachs analyst now with Carlyle, believes that the world has entered an era of declining oil trade. He argues that international oil trade peaked in 2017 and has since fallen due to the growth of locally produced wind and solar energy.
“The share of global energy consumption from fossil fuels that crossed borders peaked in 2017 and has since declined by 5%,” Currie noted in a report cited by Bloomberg. He also pointed out that oil’s reliance on cross-border trade makes it vulnerable to geopolitical risks, such as trade tariffs.
However, JP Morgan’s latest energy report challenges this outlook. Analyst Michael Cembalest pointed out that despite $9 trillion spent on renewable energy, electric vehicles, energy storage, and electrified heating over the last decade, the transition remains slow. According to him, the renewable share of final energy consumption is increasing by only 0.3% to 0.6% per year.
Market Uncertainty and Potential Corrections
While the oil market currently appears oversupplied, past trends suggest that demand can often exceed expectations. Last year, the EIA predicted a downturn in fuel demand in late spring, yet actual consumption surged to a record high.
Even IEA head Fatih Birol has shifted his stance. Speaking at CERAWeek, he called for more investment in oil and gas, contradicting his own 2021 statement that the world no longer needed new fossil fuel projects.
For now, oil prices seem poised for an extended period of weakness as production continues to outpace demand. However, given the uncertainty surrounding forecasts, a market correction could be on the horizon. The extent of such a correction will depend on how accurate—or inaccurate—current projections turn out to be.
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