Forecasts for oil demand for this year and next have been cut by the International Energy Agency, putting more pressure on crude oil prices.
The IEA said the market is "faced with a sizeable surplus in the new year", as it joined OPEC in cutting demand estimates for 2024 and 2025.
While also reassuring that it is ready to cover any supply disruption from Iran if such a situation arises, the agency's October report included a prediction that global oil demand will expand by almost 900k barrels per day (kb/d) in 2024 and close to 1 million barrels per day (mb/d) in 2025, sharply down from 2 mb/d seen between 2022 and 2023.
Lower demand from China is the key element in the deceleration, accounting for around 20% of global gains both this year and next year, compared to almost 70% in 2023.
While global oil supply plunged by 640 kb/d in September to 102.8 mb/d, OPEC+ spare production capacity stands at historic highs, outside the exceptional period in the pandemic.
Effective spare capacity comfortably exceeded 5 mb/d in September, IEA noted, with this excluding Libya, Iran and Russia.
Public oil stockpiles among IEA members are over 1.2 billion barrels, it said, with an additional half a billion barrels of stocks held under industry obligations and China holding a further 1.1 billion barrels of crude oil, 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 sizeable surplus in the new year," the report said.
Oil prices dropped sharply overnight following reports in the Washington Post that Israel's prime minister had told the White House that the country would strike military targets rather than oil or nuclear facilities in Iran.