IEA Cuts Global Oil Demand Forecast Amid ‘Wobbling’ Asian Demand
In its closely watched monthly report, the IEA downgraded its global oil demand predictions by about 100,000 barrels a day for this year
Global oil demand growth is faltering and oil production is stabilizing, providing a recipe for the global glut of petroleum and its products to continue through much of next year, the International Energy Agency said Tuesday.
The IEA’s closely watched monthly oil-market report marked an abrupt shift for an agency that a month ago said the world’s oil glut had begun disappearing. The Organization of the Petroleum Exporting Countries also surprised the market this week with
a report that oil production outside the cartel was proving more resilient than expected.
The IEA—which advises oil-consuming countries on their energy policies —blamed “wobbling” Asian oil demand and falling oil consumption in Europe for much of the change. The Paris-based agency downgraded its global oil-demand predictions by about 100,000 barrels a day for this year—although it is growing by 1.3 million barrels a day. It also reduced the forecasts by about 200,000 barrels a day in 2017, with consumption increasing more slowly at 1.2 million barrels a day.
The tapering of demand growth comes despite oil prices remaining below $50 a barrel for much of the year, over 50% below 2014 levels.
“The stimulus from cheaper fuel is fading,” the IEA report said.
Oil prices fell after the report’s release Tuesday morning, with Brent, which sets the benchmark price for internationally traded crude, declining over 2% to less than $47.50.
The fresh data is set to intensify the
debate among oil producers later this month in Algiers about whether they should put new limits on their production. Members of OPEC, a 14-nation cartel that controls over a third of the world’s oil, are set to discuss “freezing” their production levels with big oil producers outside the group such as Russia.
OPEC has been pumping at elevated levels, the IEA said, edging up by about 20,000 barrels a day to 33.47 million barrels a day in August. Middle-East producers kept their taps open to near record rates, with the United Arab Emirates hitting a new record of 3.09 million barrels a day, according to the IEA.
Despite talk of an oil production freeze, the IEA said the dynamic of heightened supplies and stumbling demand “may not change significantly in the coming months.” The agency said advanced economies were storing record amounts of oil, with inventories rising to a record of over 3.1 billion barrels.
“As a result, supply will continue to outpace demand at least through the first half of next year,” the IEA said. “As for the market’s return to balance—it looks like we may have to wait a while longer.”
The IEA’s forecast for lower demand growth in Asia undercuts a key argument for oil bulls and complicates the picture for energy-market watchers in Asia. In China, heavy flooding dented oil use as did government orders to shut down some industrial centers to keep the air clean during the G-20 summit last month, the IEA said.
Signs of firming oil consumption from China and India had helped put a floor under the oil market when prices were plumbing lows of under $30 a barrel earlier this year.
Oil imports into China have been growing briskly this year. Official government data showed oil imports jumped 24% in August to about 7.78 million barrels a day, the highest level of the year, and have pointed to a strong pickup in imports to the world’s No. 2 oil consumer for much of 2016.
Yet whether those imports reflect strong demand for gasoline and other petroleum products—or whether they are simply a sign of high levels of commercial or strategic stockpiling—has become a topic of intense debate among oil market watchers. Many say strategic reserves have been nearing capacity, and earlier this month the government said strategic oil reserves were growing at a slowing pace.
The country said strategic reserves stood at about 32 million metric tons, or 235 million barrels, up about a quarter compared with data released for mid-2015. Reserves had more than doubled from late 2014 through mid-2015. Many market watchers took that as a sign that end-user demand in the country was brisk.
“It’s become a little bit murky,” said Virendra Chauhan, oil analyst at Energy Aspects, referring to attempts to parse Chinese demand.