IEA expects substantial crude deficit in fourth quarter on Opec+ cuts

The International Energy Agency expects a “substantial” crude market deficit in the fourth quarter of this year due to Opec+ output cuts.

Global oil demand remains “on track” to grow by 2.2 million barrels per day to 101.8 million bpd this year, driven by a recovery in fuel demand in China, the world’s second-largest economy and top crude importer, the Paris-based agency said in its monthly oil market report on Wednesday.

“From September onwards, the loss of Opec+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter,” the agency said.

“Unwinding cuts at the start of 2024 would shift the balance to a surplus. However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers.”

Oil prices have been rising since Opec+ members Saudi Arabia and Russia said they would extend supply cuts of a combined 1.3 million bpd to the end of the year.

As part of their voluntary cuts, the kingdom is extending its million bpd output reduction until December while Russia is rolling over its export cut of 300,000 bpd until the end of the year.

The agency expects global oil demand to rise by 1.5 million bpd in the second half of this year, compared with the first half, exceeding supply by 1.24 million bpd during that period.

Despite sluggish economic growth, China is still on track to account for 75 per cent of the global crude demand growth this year, the agency said.

The Asian country's post-coronavirus economic recovery has lost momentum mainly due to a deepening property slump and weak consumer spending.

China has announced a string of stimulus measures over the past few weeks to revive economic growth, including halving the stamp duty on stock transactions and easing mortgage rates.

The agency has forecast a “sharp” slowdown in oil demand growth to about 1 million bpd in 2024 as the post-pandemic recovery loses steam and electric vehicle adoption grows.

So far, Opec+ supply has fallen by two million bpd in 2023, with overall losses offset by “sharply higher” crude flows from Iran, the IEA said.

Meanwhile, non-Opec+ supply rose by 1.9 million bpd to a record 50.5 million bpd by August, the agency said.

“Output curbs by Opec+ members of more than 2.5 million bpd since the start of 2023 have, so far, been offset by higher supplies from producers outside the alliance,” the IEA said.

Russian oil export revenue surged by $1.8 billion to $17.1 billion last month as higher prices more than offset lower shipments, the agency said.

However, Moscow's oil exports eased by 150,000 bpd in August to 7.2 million bpd. Shipments to China and India slumped in April and May but accounted for more than half the total volumes, the agency said.

Global crude stocks plummeted by 76.3 million bpd to a 13-month low in August, led by a hefty decline in shipped oil, the IEA said.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.78 per cent higher at $92.78 a barrel at 12.37pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was up 0.84 per cent at $89.59 a barrel.

In its monthly oil market report on Tuesday, Opec said it expected a supply shortfall of 3.3 million bpd over the next three months.

The group also stuck to its oil demand outlook for this year and the next, and said China’s recent stimulus measures would help to revive economic growth.