The energy landscape is increasingly dominated by the fluctuating dynamics of the global oil market, which has once again come into focus with the recent release of the International Energy Agency's (IEA) oil market report for October 2024. The report outlines key projections for oil demand and supply, painting a complex picture of an industry grappling with both recovering and declining elements.

According to the IEA's latest projections, global oil demand is anticipated to increase by nearly 900,000 barrels per day (bpd) in 2024, with a further increase of about 1 million bpd expected in 2025. This marks a sharp decline from the post-pandemic growth of around 2 million bpd observed during 2022-2023. It is noteworthy that China, traditionally a major driver of oil demand, will account for only about 20% of the global demand growth this year and the next, down from an overwhelming nearly 70% share in 2023. This shift signals a significant change in the global marketplace, as China’s economic recovery slows down and its demand begins to plateau.

In September, there was a significant drop in global oil supply, plummeting by 640,000 bpd to 102.8 million bpdSeveral factors contributed to this decrease, notably Libya's ongoing political turmoil that has hindered oil production and exportsMeanwhile, maintenance activities in Kazakhstan and Norway also resulted in reduced output levelsThe report indicates that supply from non-OPEC+ producers is expected to grow by approximately 1.5 million bpd this year and next, with the Americas being the primary region driving this increase, accounting for a remarkable 80% of the growth.

However, the oil sector faces its trials; the report highlights a downturn in refining margin profitability that reached its lowest levels since 2020. In September, due to the declining margins between gasoline, jet fuel, and diesel, the global average refinery profit margins fell sharply

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Despite rising crude oil prices amid a relatively tighter market, the processing capacity estimates for crude oil were also revised downward - a predicted decrease of 180,000 bpd to 82.8 million bpd for 2024 and a further adjustment of 210,000 bpd to 83.4 million bpd for 2025. Overall, this points towards the growth being more modest than previously anticipated, with annual increments expected to be about 540,000 bpd and 610,000 bpd, respectively.

Since the spring of recent years, global refinery margins (assessed using the 3-2-1 crack spread) have consistently lagged behind the average recorded over the previous five years (2019-2023). The margins saw a more pronounced decline towards the end of summer and into early fallThe 3-2-1 crack spread, which measures the profitability of refineries by comparing the prices of two barrels of gasoline and one barrel of distillate to the cost of three barrels of crude oil, has illustrated this downturnThe current situation echoes the lows of 2020, when travel restrictions due to the COVID-19 pandemic drastically reduced demand for fuels.