At a recent online forum on Energy held by S&P Global Commodity Insights, Richard Murphy of Ion Commodities reviewed a series of disruptions to the supply and demand of the oil market over the years.

Murphy stated, "Since 2020, we have been living in a world full of significant chaos, with black swan events occurring multiple times, bringing numerous operational risks to participants in the oil market."

He cited several major events: the grounding of the container ship 'Ever Given' in 2021, which disrupted the Suez Canal, and ship rerouting due to attacks by Houthi forces in Yemen; the extreme cold weather in Texas in 2021; the destruction of Europe's 'Nord Stream' natural gas pipeline in 2022, affecting the delivery of Russian gas; the COVID-19 pandemic; and what he referred to as the "largest event": the conflict between one of the world's largest oil producers, Russia, and Ukraine, leading to a series of formal and informal sanctions.

However, by the end of 2024, oil market prices are around $70-73 per barrel. On the last trading day a year ago, the global crude oil benchmark, Brent Crude, closed at about $77 per barrel.

The reason oil prices have maintained their current levels is that many oil-producing countries around the world have reduced crude oil output in the market more than ever to prevent prices from falling further.

A large amount of idle oil.

Although there are no official measurements of excess capacity, informal estimates show that about 5 million barrels per day of oil production is idle, as the governments of these countries have chosen to cooperate to limit supply. It is widely believed that the level of excess capacity is unprecedentedly high.

In February 2022, with the outbreak of the Russia-Ukraine conflict, the world was struggling to cope with the reduction in Russian oil production caused by formal and informal sanctions and restrictions on the sale and transportation of Crude Oil Product (estimated loss of about 3 million barrels per day), making oil prices totally unpredictable.

However, the latest monthly report from the International Energy Agency (IEA) brings good news for oil-consuming countries: as the market approaches 2025, the market balance continues to favor buyers rather than sellers.

According to IEA data, global oil demand is expected to increase by about 0.84 million barrels per day year-on-year in 2024. This is a very low figure compared to recent years. The market over the past few years has been distorted by the pandemic and its impact on supply and demand. However, the IEA report states that from 2018 to 2019, demand increased by 1 million barrels per day.

Good news for consumers lies in the IEA's forecast for supply and demand growth in 2025.

According to the final monthly report released by the IEA, demand growth for 2025 is expected to be 1.1 million barrels per day, and next year's demand growth is expected to push the average annual consumption to 0.1039 billion barrels per day.

In November, the IEA's estimate for oil supply was 0.1034 billion barrels per day. However, its forecast also indicates that next year's total oil supply—Crude Oil Product, liquefied natural gas such as propane and butane, and biofuels—will increase by 1.9 million barrels per day compared to the average of 0.1029 billion barrels per day for the entirety of 2024. This brings next year's average supply to 0.1048 billion barrels per day, which is about 1 million barrels per day higher than the EIA's estimated average total demand for oil in 2025.

This number assumes that all production cuts implemented by OPEC+ will remain in place, although the group plans to gradually lift the cuts starting in April next year.

The forecast for an imbalance in supply and demand next year is one of the reasons why OPEC+ decided earlier this month to maintain production cuts. OPEC+ has repeatedly planned to cancel some production cuts but has postponed them due to concerns that the market cannot handle additional supply.

The increase in production in the USA and its record output are the main reasons for the downward pressure on oil prices. According to the EIA's recent weekly estimate, USA's oil production is approximately 13.6 million barrels per day, setting another historical high.

Electric vehicles are having an increasing impact globally.

However, as a recent report from Argus Media (a competitor of S&P Global Commodity Insights) clearly points out, one of the factors affecting the weak oil market remains the growth in electric vehicle demand globally.

While the challenges faced by electric vehicle sales in the USA have been widely reported, this is not the case globally. Given that oil is a global market, events in one part of the world can have global repercussions—oil markets are susceptible to some chaos theory effects—advancements in electric vehicle technology in China and other regions are impacting the oil market.

The Argus report highlights Europe. For a long time, diesel has been the primary Transportation fuel for private Autos in Europe. However, according to Argus, this situation is changing.

The report states, "Diesel demand in Europe has been continuously declining, a trend that can be traced back to before the pandemic, as Consumers are shifting towards RBOB Gasoline and other alternative fuels driven by government policies and the rise of local 'low emission zones.'" Europe's low emission zones restrict certain high-emission vehicles from entering specific areas.

The report notes, "European Consumers are choosing more gasoline vehicles, hybrids, and pure electric vehicles, leading to a rapid shrinkage in diesel's market share."

It is estimated that from 2017 to 2023, Germany's diesel market share has decreased by 5 percentage points, and France's has declined by over 10%.

However, this is not uncommon, as markets with production exceeding 0.1 billion barrels per day are not solely composed of RBOB Gasoline and diesel. In recent years, the demand for petrochemical products has been a key growth point and will continue to be so, says the IEA.

What has failed in its conception is that, "The growth over the past two years will be mainly dominated by petrochemical feedstocks, naphtha, liquefied petroleum gas, and ethane, while the absorption of transportation fuels will continue to be constrained by behavioral and technological changes," stated the IEA in its latest monthly report.