Brent crude oil prices dipped below $63 a barrel today as the International Energy Agency (IEA) revised its oil demand forecast down due to mild early winter temperatures and rising production from some countries.
The Paris-based IEA revised demand growth down by 100,000 barrels per day (bpd) for both 2017 and 2018, for an increase of around 1.5m bpd this year, to 97.7m bpd, and 1.3m next, to 98.9m bpd, which could push the market back into a surplus in the first half of next year.
"Using a scenario whereby current levels of Opec [Organisation of the Petroleum Exporting Countries] production are maintained, the oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 0.6m bpd followed by another, smaller, surplus of 0.2m bpd in 2Q18."
Global oil supply rose by 100,000 bpd in October to 97.5m bpd on higher production from non-Opec countries, and non-Opec oil supply is expected to rise by 700,000 bpd this year and 1.4m bpd next year, led by stronger output in the US.
"This is why, absent any geopolitical premium, we may not have seen a 'new normal' for oil prices," the IEA said.
Brent crude oil prices recently climbed to two-year highs of more than $60 a barrel due to supply disruptions, geopolitical concerns and a growing expectation that an Opec-led agreement to reduce production will be extended through 2018.
At the time of writing, Brent crude oil prices were trading 0.54 per cent lower at $62.82 per barrel while US benchmark West Texas Intermediate (WTI) prices were down 0.48 per cent at $56.49 per barrel.
The impact of electric vehicles
The IEA also today released its latest World Energy Outlook, in which it said global oil demand will fall modestly due to the rise in electric cars.
However, even rapid growth in the electric vehicle fleet would be unlikely to have a substantial impact on oil consumption for passenger transport until the mid-2020s, it said.
"Indeed, in the absence of a major switch in policy direction, there is likely to be continued robust growth in other sectors, including trucks, aviation, maritime transport and petrochemicals. This is a continuation of the strong demand growth we are seeing in our short term oil market analysis," the report said.
The largest disruptive force to supply will be shale production in the US - the IEA estimates US crude oil will reach peak output in the 2020s of around 17m bpd.