As OPEC+ prepares to boost oil production starting in October, global oil demand growth must accelerate in the coming months to avoid potential market imbalance.
Despite expectations, oil demand growth from major consumers, the United States and China, has been lackluster in the first seven months of 2024. Recent economic uncertainties, including renewed fears of a U.S. recession, have exacerbated concerns, leading to a sell-off in global stock and bond markets.
Gary Ross, CEO of Black Gold Investors, notes that “with the significant risk of recession, it is unlikely OPEC+ will proceed with the planned increases in October.” Analysts suggest that if demand does not pick up, OPEC+ may need to either delay the production increase or accept lower oil prices.
Currently, oil prices have dipped below $80 per barrel, which is below the breakeven point for many OPEC+ members. Neil Atkinson, an independent analyst, highlights that “oil demand definitely has a downside risk,” particularly with ongoing concerns about economic conditions in China and the U.S. He anticipates that OPEC+ may pause its planned output increase if demand growth does not meet expectations.
China’s crude oil imports averaged 10.89 million barrels per day (bpd) in the first seven months of 2024, marking a 2.4% decline from the previous year. The country’s reduced consumption of diesel, driven by a shift towards LNG-powered trucks and a sluggish economy affected by the property sector crisis, has contributed to this decrease.
In the U.S., oil consumption increased by 220,000 bpd year-over-year to 20.25 million bpd through July. However, to meet the government’s forecast of 20.5 million bpd for 2024, demand must accelerate.
Discrepancies between global oil demand estimates highlight the uncertainty in the market. OPEC estimates global demand growth at 2.15 million bpd for the first half of 2024, while the International Energy Agency (IEA) reports a significantly lower figure of 735,000 bpd. The IEA has revised its demand growth forecast down from earlier estimates, partly due to differing views on Chinese consumption trends.
The second half of the year typically sees increased oil consumption due to economic growth, peak driving season, and preparation for winter. For OPEC’s forecast to be accurate, demand growth would need to average 2.30 million bpd in the latter half of 2024. Conversely, the IEA’s forecast would require a more modest growth of 1.22 million bpd.
OPEC+ confirmed its plan to increase production from October, with the flexibility to adjust if necessary based on market conditions. If OPEC’s demand projections are met, crude oil demand from OPEC+ is expected to reach 43.9 million bpd in the fourth quarter, up from 40.8 million bpd in June. However, the decision to proceed with the increase will depend on upcoming market data.
Saudi Aramco CEO Amin Nasser anticipates growth of 1.6 to 2 million bpd in the second half of the year. However, uncertainties remain, with some OPEC sources questioning whether demand is rising sufficiently to meet forecasts.
In the U.S., gasoline demand has shown variability, with recent revisions indicating a peak in May. Diesel demand has been weaker, down about 4% compared to the first five months of 2023.
Overall, the global oil market faces significant challenges, with demand growth needing to accelerate to accommodate the planned increase in oil supply from OPEC+. The IEA and OPEC are expected to update their forecasts next week, which will provide further clarity on the market outlook.
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