The IEA's 2024 global oil demand forecast remains unchanged, but the watchdog lowered its 2025 estimates due to the impact of a weakened Chinese economy on consumption.
According to the IEA’s August oil report, released on Tuesday (13 August), Chinese oil demand declined for the third consecutive month in June, primarily due to decreased industrial inputs, including those for the petrochemical sector.
Preliminary trade data suggests further weakness in July, with crude oil imports dropping to their lowest level since the strict lockdowns of September 2022.
Global oil demand increased by 870,000 barrels per day (bpd) in the second quarter (Q2) of 2024, “with a contraction in China limiting gains”.
Demand is set to rise by less than one million barrels per day (mbbl/d) in 2024 and 2025, largely unchanged from last month’s report. As per the IEA, growth is far slower than last year’s 2.1mbbl/d growth as “comparatively lacklustre macroeconomic drivers come to the fore”.
Chinese oil growth demand is slowing down due to “weak macroeconomic performance following the protracted property sector crisis, which has seen manufacturing and consumption take a hit, leading to slowed oil demand”, said Paul Hasselbrinck, GlobalData’s upstream analyst.
“A potential fiscal stimulus is likely to come from the government as pressure mounts, which could see growth return to higher levels next year,” he added.
According to Hasselbrinck’s analysis of the IEA prediction, the estimates for demand are linked to forecasts for GDP growth. They are adjusted according to the level of economic activity, which varies based on industrial progress and the adoption of clean energy technologies in power generation, transportation and other industries.
Additionally, OPEC+ has not yet decided to end its plan to slowly reduce voluntary production cuts, which are set to begin in Q4. OPEC+ member countries anticipate that the upcoming monitoring session of the extended energy group will not result in any adjustments to supply levels for the remainder of the year.
According to the current estimates from the IEA, global inventories could increase by an average of 860,000bpd next year, even if those cuts remain in place, as non-OPEC+ supply is expected to grow by around 1.5mbbl/d in 2024, and then again in 2025, surpassing the anticipated demand growth.
However, the supply seems to struggle to keep pace with the high demand during the peak summer season, leading to a shortage in the market. Consequently, global inventories have been negatively affected, the IEA said.
In June, oil inventories decreased by 26.2mbbl after showing growth for four consecutive months. While China significantly increased its reserves, crude oil stocks plummeted by 40.9mbbl.
Hasselbrinck added: “Global supply challenges, lower inventory levels and high volatility were expected to force industry players strategic capacity management decisions in 2024. However, a lower-than-expected summer peak so far has squeezed refining margins during the season. Despite the anticipated supply constraints, keeping pace with current demand is not expected to be a challenge.”
