Slowing oil demand growth and a persistent global glut will cap oil prices and keep them from rising too much, barring serious escalations in geopolitical tensions, Fatih Birol, the executive director of the International Energy Agency (IEA), said on Friday.
“Prices are determined by the markets...If we see the market today we see that the demand is slowing down considerably,” Reuters quoted Birol as saying during an energy conference in India today.
According to the head of the Paris-based agency, substantial amounts of oil from the U.S. are flooding the market, and oil output also grows in Iraq, Brazil, and Libya.
This increase in supply, however, has now created a global glut, the IEA said in its latest Oil Market Report. Oil supply outstripped demand by 900,000 bpd in the first half of this year, the IEA said last week, warning that the oil market rebalancing has slowed down.
“This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter. Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future,” the IEA said.
In its July report, the IEA said that its outlook for oil demand growth in 2019 is little changed from the previous report and still stands at 1.2 million bpd.
But Birol told Reuters in an exclusive interview earlier this week that the agency is cutting its 2019 oil demand growth projection to 1.1 million bpd in view of slowing global economy.
“If the global economy performs even poorer than we assume, then we may even look at our numbers once again in the next months to come,” Birol told Reuters.
Early on Friday, oil prices were rallying after the United States Navy shot down an Iranian drone in the Strait of Hormuz on Thursday. USS Boxer took defensive action against an Iranian drone that had approached the ship too close despite numerous warnings to stand down, U.S. President Donald Trump said. The drone was threatening the safety of the ship and the ship’s crew, and was immediately destroyed, President Trump added.
Iran denied the incident, saying that all its drones over the Strait of Hormuz are accounted for.
By Tsvetana Paraskova for Oilprice.com
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