In its monthly market report, the International Energy Agency (IEA) says the oil market could see a significant surplus next year amid slower demand for oil. Slowing economic conditions, particularly in China, could weigh on demand and put downward pressure on prices. However, supply is expected to increase, particularly if the Organization of the Petroleum Exporting Countries and allies (OPEC+) scales back its production cuts as planned in January 2025. The push and pull could cause some wide swings in oil prices.

• The IEA expects the supply of oil to exceed demand in 2025, which could result in a surplus of 1 million barrels of oil per day. The expected drop in demand is being driven by weak economic activity in China, which has persisted for several quarters. The rise of electric vehicles and high-speed rail is also weighing on demand, according to the IEA.
• At the other end of the market, the outlook for supply is relatively uncertain. Ongoing tensions in the Middle East and an expected pickup in supply from OPEC+ could factor into daily production next year. The IEA expects higher oil supply in 2025 from the US, Canada and Guyana.
• OPEC+ announced plans to scale back its production cuts, but those plans have been delayed to January 2025 amid a fragile global economy. In its November report, OPEC+ reduced its outlook for demand in 2024 and 2025.
• An expected surplus could put downward pressure on oil prices. This would help ease some of the pressure on consumers, with energy prices a key factor in higher inflation.

Global oil market dynamics will impact Canada’s energy sector. Currently, the IEA expects Canada to increase production, but the global oil market and economic environment could change that outlook. Furthermore, President-elect Donald Trump has suggested placing tariffs on Canadian goods, which could include energy products, raising some uncertainty about Canada’s energy production.

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