Tensions in the oil market - the latest view from the International Energy Agency (IEA)

Hamas attack on Israel and its impact on oil prices

Conflict breaks out in the Middle East, a region responsible for over one-third of the world's economy oil trade by sea, contributed to the tension on the oil markets. Hamas' surprise attack on Israel on October 7 prompted investors to price in a risk premium of $3-4 per barrel when market trading began, the IEA said in its latest report.

Oil market at a crossroads: price increases and macroeconomic indicators

Oil prices they had already reached almost $98 a barrel in mid-September, after Saudi Arabia and Russia extended voluntary production cuts through the end of the year and crude and distillate stocks fell to extremely low levels. The rise in prices has focused market attention on the prospect of "higher interest rates for longer," which could slow economic growth and demand. Brent crude futures fell more than $12 a barrel to $84 a barrel in early October as supply concerns gave way to deteriorating macroeconomic indicators and signs of weakening demand in the United States, where gasoline supplies have fallen to two-decade lows. Demand destruction has hit emerging markets even harder, where currency effects and subsidy withdrawals have pushed fuel prices higher. However, economic growth continues in China, India and Brazil, supporting forecasts of global oil demand growth this year of around 2,3 million barrels per day, of which China accounts for 77%. Oil demand growth is expected to slow to 900 barrels per day in 2024 as the post-pandemic recovery loses steam, economic development slows and improvements in energy efficiency impact oil consumption.

Oil supply dominated by non-OPEC+ producers

In terms of supply, non-OPEC+ producers dominate the oil market both this year and next, supplying 1,5 million barrels per day and 1,7 million barrels per day, respectively. OPEC + in turn, it is moving towards reducing supply this year, although Iran is on track to become the world's second-largest source of growth after the United States. Voluntary cuts are expected to keep the oil market in deficit as OPEC+ could produce 1,3 million barrels per day below demand for its oil in the fourth quarter of 4. If additional cuts are eliminated in January, the balance could shift to surplus, which will go some way to replenishing depleted stocks. Observed global oil stocks fell by 2023 million barrels in August.

Petroleum products market before winter in the Northern Hemisphere

Petroleum product markets are tight ahead of the arrival of winter in the Northern Hemisphere. Ten months after the EU imposed an embargo on Russian oil, European refiners continue to struggle to raise diesel processing and production levels. High levels of diesel imports will need to be maintained, but strict winter fuel quality specifications limit available supplies. Perhaps another mild winter will help avoid shortages, the IEA said.

Uncertainty in the Middle East and the oil market: expectations for the future

The conflict in the Middle East is rife with uncertainty and events are developing very rapidly. In the context of tight oil markets expected by the IEA for some time, the international community will continue to pay close attention to the risks associated with oil flows in the region.

Uncertainties in the Middle East region, combined with difficulties in adjusting the oil market, currently create an extremely uncertain outlook for oil prices. Expectations regarding global oil prices are influenced by current events in the Middle East, as well as changes in raw material prices and economic indicators on global markets. This is a challenging time for the oil market, with both supply and demand playing key roles. Whether the market will be able to adapt to the increasingly unpredictable events in the Middle East region is an open question. Further tensions are expected in the oil market in the coming months, which will require close monitoring and flexibility from international energy institutions, including the IEA. Any possible actions on the oil market will have an impact on oil prices around the world.

Based on Oil Market Report – October 2023 (IEA)