Global Oil Demand: IEA puts a damper on optimism of OPEC+ - again!

 

The IEA, International Energy Agency, put a damper on the recovery of oil prices again with the release of the latest report on the demand in the commodity.

In its latest report, released in October, the IEA says the oil demand is poised to grow by approximately 890,000 barrels per day (kb/d) in 2024 and just under 1 million barrels per day in 2025, marking a significant deceleration from the 2 million barrels per day, observed post the 2022-2023 period.

Data Credit: IEA, International Energy Agency

China's influence on this growth wanes, contributing about 20% of the global increase in both years, a sharp contrast to its nearly 70% contribution in 2023. On the supply side, global oil production saw a reduction of 640 kb/d in September 2024, dropping to 102.8 million barrels per day (mb/d) due to political instability in Libya affecting production and maintenance in Kazakhstan and Norway.

Oil markets have been pinning their hopes of the recovery on the Chinese recovery. Month on month, however, manufacturing output showed clear signs of shrinking, according to manufacturing PMI, the key indicator of the Chinese manufacturing sector.

According to the data provided by China's Bureau of Statistics, only in March and April, did the PMI go above the threshold, i.e., 50%; since April, it has been below 50% and there was a slightly upward trend in September.

Against this backdrop, China introduced an economic stimulus package, part of multifaced approach in order to boost the economic growth. It included injecting nearly 1 trillion yuan into the financial markets so that lending cost could be reducing while enhancing liquidity. In addition, there were measures to support the beleaguered property market in China that plays a crucial role in the economic health of the world’s second largest economy.

Of course, as expected, the stimulus package did the trick at the outset; the stock markets became buoyant and indices went up significantly. There were, however, misgivings about the long-term sustainability that started playing up again in the collective psyche of the investors and analysts.

As a result, the Chinese factor started weighing on the reality of the demand for crude oil in the coming months and even in the foreseeable future. The IEA singled out the demand in China that is on decline as the major factor for being downbeat about the demand of the commodity in the last quarter of this year and next year.

The OPEC+, meanwhile, by contrast, does not see the picture exactly the way the IEA sees it; although, the cartel reduced its own forecast slightly, it still hopes for an impressive recovery in 2025; the OPEC+, however, has been too cautious to restore the production cuts that it said it would do in October that has been put off until December.

In short, the IEA and OPEC+ hold diverging views that sometimes resulted in very public spats between the two; their respective positions are not just an oil drop apart! As things stand, the IEA stands more on the side of reality than the OPEC+ does.