Oil records weekly loss on demand concerns and expectations of oil glut next year

Global oil supply will outpace demand by over 1 million barrels per day in 2025, IEA says

Fuel storage containers along Chelsea Creek in East Boston, Massachusetts. US crude supply is expected to receive a boost from Donald Trump’s election as US president. EPA

Oil prices fell on Friday and recorded a weekly loss due to weak Chinese demand and prospects of higher crude supply next year.

Brent, the benchmark for two thirds of the world's oil, settled 2 per cent lower to $71.04. West Texas Intermediate, the gauge that tracks US crude, fell 2.45 per cent to close at $67.02 a barrel, the lowest close since September. WTI ended the week almost 5 per cent lower, steered by large losses on Monday and Friday.

China's oil refiners processed 4.6 per cent less crude oil last month compared to the previous year, marking the seventh consecutive month of decline, official data showed.

This fall was driven by plant closures and reduced production at smaller independent refineries, according to data released by the National Bureau of Statistics.

China – the main driver of global oil demand growth in 2023 – is experiencing an economic slowdown due to a weak property market, sluggish consumer spending and a decline in manufacturing activity.

The International Energy Agency has predicted that global oil supply will outpace demand by more than 1 million barrels per day in 2025. This surplus is primarily driven by increased production from non-Opec+ countries – particularly the US, Canada, Guyana, and Argentina.

“Even if the Opec+ cuts remain in place, global supply exceeds demand by more than 1 million bpd next year,” the Paris-based agency said in its monthly oil market report on Thursday.

“With supply risks omnipresent, a looser balance would provide some much-needed stability to a market upended by the Covid pandemic, Russia’s full-scale invasion of Ukraine and, most recently, heightened unrest in the Middle East.”

Brent has fallen by about 21 per cent since hitting a high of $91 a barrel in April as slowing demand in China continues to offset supply disruption fears in the Middle East.

Swiss lender UBS lowered its Brent price forecast for next year to $80 a barrel from $85, citing slower-than-expected Chinese oil demand growth.

However, UBS strategist Giovanni Staunovo said that market participants are pricing in a “too pessimistic” outlook for 2025.

“With visible global oil inventories showing larger declines than the difference in the supply and demand models of energy agencies, we continue to believe that part of the mismatch is driven by underestimated oil demand growth,” Mr Staunovo said in a research note.

This week, Opec revised down its forecast for oil demand growth this year based on data from China, India and other regions, while also lowering its estimate for 2025, marking the producer group’s fourth consecutive downward adjustment.

Meanwhile, US crude supply is expected to receive a boost from Donald Trump’s election as US president, who has pledged to expand drilling and reverse some climate policies implemented by President Joe Biden’s administration.

However, analysts have noted that output from US oilfields will mainly be driven by oil prices and economic factors, citing record production under Mr Biden.

“We continue to believe that it is not the person sitting in the White House that determines the US crude production path, but the prevailing spot price,” Mr Staunovo said.

“With the US crude price starting to trade into the production curve, if current prices prevail, US crude production could be flat or even negative next year,” he added.