IEA prepared for Middle East supply shock, sees market 'adequately supplied'

The International Energy Agency is ready to quickly bring emergency stocks to the market in the event of a Middle East supply shock, but the oil market is "adequately supplied," with high product stocks and ample OPEC+ spare capacity, it said Oct. 15.

The IEA's monthly oil market report highlighted a shortfall in global crude stocks, with "observed" stocks at their lowest since at least 2017. However, it said oil product stocks had "swelled" to three-year highs on the back of high refinery activity.

Also providing a buffer, the IEA again trimmed its estimate of 2024 oil demand growth by 50,000 b/d to 860,000 b/d, although it increased its demand growth estimate for 2025, also by 50,000 b/d, to 1.0 million b/d.

Global oil demand rose less than expected in the third quarter of 2024, increasing by 680,000 b/d year on year, the slowest pace of growth since Q4 2022, the IEA said, explaining its 2024 demand downgrade.

"China’s slowdown occurs amid an overall geographical recalibration of demand trends, with this year’s increase in India (up 190,000 b/d) and Brazil (up 120,000 b/d) at a comparable rate to China (up 150,000 b/d)," the IEA said.

In terms of supply security, "OPEC+ spare production capacity stands at historic highs, barring the exceptional period of the COVID-19 pandemic. Excluding Libya, Iran and Russia, effective spare capacity comfortably exceeded 5 million b/d in September," the IEA said.

"Global oil stocks provide a further buffer, even as observed crude ... inventories drew by 135 million barrels over the past four months to their lowest since at least 2017 and OECD industry stocks remain well below their five-year average ... Global refined product stocks have swelled to three-year highs, pressuring margins," it said.

Following public discussion of a possible Israeli attack on Iranian oil facilities, "the IEA stands ready to act if necessary. As shown in 2022, the agency and its member countries can quickly take collective action," it said, referring to stock releases after Russia's full-scale invasion of Ukraine.

"IEA public stocks alone are over 1.2 billion barrels, with an additional half a billion barrels of stocks held under industry obligations. China holds a further 1.1 billion barrels of crude oil stocks, enough to cover 75 days of domestic refinery runs at current rates. For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizable surplus in the new year."

The IEA's comments followed overnight reports Israel would restrict any attacks on Iran to military targets, thus avoiding oil infrastructure such as the Kharg Island export facility -- reports that served to calm the market, sending futures prices sharply lower.

Narrowing forecasts

The IEA's downgrade of demand growth in 2024 comes a day after OPEC downgraded its own forecast of demand growth for both 2024 and 2025. However, the Vienna-based OPEC secretariat's growth estimate for 2024 is more than double that of the IEA, at 1.93 million b/d. The IEA has repeatedly highlighted China's demand slowdown as the driver behind reduced demand expectations, attributing it both to economic factors and switching to lower-emissions transportation.

S&P Global Commodity Insights earlier this October revised its own global oil demand projections, forecasting growth of 1.0 million b/d in 2024 and 1.3 million b/d in 2025.