Macro

Global Oil Demand Growth Slows to 710,000 Barrels/Day as China Cools, IEA Says

Global oil demand growth slows to 710,000 barrels/day in Q2, lowest since late 2022, IEA reports.

By Mackenzie Crow

7/11, 07:58 EDT
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Key Takeaway

  • Global oil demand growth slowed to 710,000 barrels/day in Q2, the weakest since late 2022, as China's post-pandemic rebound fades.
  • Despite current crude prices near $85/barrel, IEA projects global inventories will balance in Q4 and tip into surplus next year.
  • Long-term outlook suggests world oil demand may stop growing before the decade's end due to economic factors and vehicle electrification.

Slowing Global Oil Demand

Global oil demand growth has decelerated to its weakest pace in over a year, according to the International Energy Agency (IEA). The IEA's latest monthly report reveals that world consumption increased by just 710,000 barrels per day in the second quarter, marking the smallest gain since late 2022. This slowdown is largely attributed to a marginal contraction in Chinese consumption as the country's post-pandemic rebound loses momentum. The IEA projects that global demand will grow by less than 1 million barrels per day annually for 2024 and 2025.

The IEA's report highlights that the slackening fuel use is being comfortably met by a surge in new supply from the US and other parts of the Americas. Consequently, global observed inventories have swelled for four consecutive months through May, reaching their highest levels since mid-2021. "World oil demand continues to decelerate," the Paris-based agency stated, noting that "Chinese consumption contracted, as the country’s post-pandemic rebound has run its course."

Diverging Industry Views

Despite the IEA's bearish outlook, other forecasters in the oil industry, including trading houses and Wall Street banks, maintain a more optimistic view of consumption. Crude prices continue to trade near $85 a barrel in London, supported by a seasonal increase in demand for driving fuels, which is helping to reduce stockpiles in the US, the world's largest consumer. However, the IEA's estimates suggest that this strength may not be sustainable.

The IEA projects that global inventories will be broadly balanced in the fourth quarter, even if the OPEC+ alliance, led by Saudi Arabia, does not follow through on plans to restore production. The agency anticipates that markets will tip into surplus for most of next year. "After the hot summer, cooler trends are set to prevail," the IEA noted. The agency attributes the modest demand growth to "subpar economic growth, greater efficiencies, and vehicle electrification."

Market Reactions and Price Movements

Oil prices have climbed for a second consecutive day, countering the IEA's downbeat demand growth forecast. Brent crude, the global benchmark, advanced above $85 a barrel after posting a 0.5% gain on Wednesday. The rise in prices follows data showing a 3.4 million barrel decline in US crude inventories last week, with increased consumption of jet fuel and gasoline as the summer travel season continues.

The oil market's push higher coincides with a rally in global equities, with US shares reaching new highs ahead of inflation data that could influence investor expectations for interest-rate cuts from the Federal Reserve. Crude prices have been supported this year by OPEC+ supply cutbacks, although relatively muted price movements have led to a decline in market volatility to multi-year lows. Key producer Russia made noticeable reductions in June, despite some cartel members continuing to pump above agreed limits.

"The big event for oil is, like other markets, the US CPI that could pave the way for a September cut supporting USD-denominated commodities like oil," said Arne Lohmann Rasmussen, Head of Research at A/S Global Risk Management. "The IEA report today indicates that demand might not be as strong as some believe here in Q3."

Street Views

  • International Energy Agency (IEA) (Bearish on global oil demand):

    "World oil demand continues to decelerate. Chinese consumption contracted, as the country’s post-pandemic rebound has run its course."

  • BP Plc (Neutral on long-term global oil demand):

    "[The] plateau for consumption could arrive as early as next year."