Since last summer, global crude oil prices have dropped by about 60%, from upwards of $110 to the current $45 per barrel. According to the International Energy Agency (IEA), the heart of this crash lies in simple supply and demand economics. That is, the fact that supply has surged far far ahead of demand.

On Friday, in the IEA's latest Oil Market Report this current state of affairs is summarised as follows:

"The price of oil continued to collapse into January as rising supplies collided with weak demand growth and OPEC maintained its commitment to not cut production."

The IEA further explains this supply/demand balance through three points and two corresponding graphics.

First - demand:

"Macroeconomic weakness continues to restrain global oil demand growth, with 4Q14 deliveries estimated just 0.6 mb/d above year-earlier levels. Despite lower prices, demand growth is only forecast to accelerate to 0.9 mb/d in 2015, unchanged since last month's [Oil Market] Report."

Second - supply:

" OPEC output rose by 80 kb/d in December to 30.48 mb/d, as Iraqi supply surged to 35-year highs, offsetting deeper losses in Libya. Downward revisions to the non-OPEC supply outlook raise the 'call' on OPEC for 2H15 to an average 29.8 mb/d - just shy of OPEC's official target of 30 mb/d."

"Global refinery crude throughputs surged to a new record high of 78.9 mb/d in December, lifting the 4Q14 estimate to 78.2 mb/d. Throughputs are forecast however to ease seasonally to 77.8 mb/d in 1Q15 amid brimming product inventories, weakening margins, lower demand and increased refinery maintenance."

Photo Credit: Graphics courtesy of the International Energy Agency Oil Market Report (link)