By Alex Lawler, Dmitry Zhdannikov and Shariq Khan
Alex Lawler, Dmitry Zhdannikov, and Shariq Khan discuss the critical need for global oil demand growth to accelerate in the coming months in order to absorb the planned increase in oil supply by OPEC+. Data, analysts, and industry sources all point to the potential struggle the market may face if demand does not pick up significantly.
The first seven months of the year have already shown a lackluster oil demand growth from major consumers like the United States and China, which has raised concerns even before the recent stock and bond sell-off triggered by fears of a U.S. recession.
Analysts warn that if the economy continues to slow down, oil demand growth will likely follow suit. This could force OPEC+ to reconsider their plans to increase oil production or accept lower prices in exchange for higher supply.
According to Gary Ross, CEO of Black Gold Investors, in the current economic climate with a significant risk of recession, it is unlikely that OPEC+ will move forward with their planned October increases.
With the price of oil dipping below $80 per barrel in August, many OPEC+ members are struggling to balance their budgets. Neil Atkinson, an independent analyst, highlights the downside risk to oil demand, especially with concerns surrounding the Chinese and U.S. economies.
China's declining crude imports and diesel consumption, coupled with a sluggish economy, are contributing to the overall slowdown in global oil demand. In the U.S., oil consumption has seen a slight increase but will need to pick up pace to meet the government's forecast for 2024.
As OPEC and the IEA provide varying estimates for global demand growth, the outlook for the rest of the year remains uncertain. The second half typically sees higher oil consumption due to global economic growth and seasonal factors, but whether demand will meet expectations is still up in the air.
Both OPEC and the IEA are set to update their demand forecasts next week, shedding more light on the future trajectory of oil demand and supply.
OPEC+ Supply Increase
OPEC+ has confirmed its plan to ramp up production from October, contingent on demand meeting their forecasts. The producer group and its allies account for over 40% of the world's crude oil production.
If demand aligns with OPEC's predictions, the need for crude from OPEC+ countries could reach 43.9 million barrels per day in the fourth quarter, allowing room for additional output. However, the group has the flexibility to pause or reverse the increase in production if necessary.
Saudi Aramco CEO Amin Nasser anticipates growth in the second half of the year, but uncertainties remain about whether demand is rising at the required pace to meet OPEC's expectations.
U.S. Demand and China's Influence
The IEA suggests that slower economic growth and the shift towards electric vehicles in China are altering the global oil consumption landscape. On the other hand, OPEC remains optimistic about strong growth in the region.
Early signs of a rebound in China's August crude imports point to a potential recovery, but demand for oil loading remains soft. The global jet demand is expected to surpass pre-pandemic levels this year, with China playing a significant role in the recovery.
As the world watches for cues from China and the aviation sector, the future of oil demand growth hinges on various factors that will continue to shape the market's trajectory.
Analysis
It is crucial for investors and individuals to monitor the developments in the oil market, as they can have a direct impact on prices and supply. The uncertainty surrounding global oil demand growth and OPEC's production plans can lead to price fluctuations and economic implications worldwide.
For consumers, this could mean changes in fuel prices and overall energy costs, while investors may need to adjust their portfolios based on the evolving market dynamics. Understanding the interplay between demand, supply, and economic factors is essential for making informed decisions in the oil market.
The Latest Financial Market Trends: Chinese Demand, European Jet Demand, and US Gasoline Demand
As the world's best investment manager and financial market journalist, I bring you the latest updates on the global economy. Chinese demand has been lackluster, while jet demand in Europe is showing signs of recovery but has not fully bounced back from the pandemic.
In the top oil consumer, the United States, gasoline demand has been a tricky metric to measure. Recent revisions to official data revealed that May demand was at its highest level since August 2019. This contradicted earlier estimates and independent trackers which had indicated demand was lower than last year.
However, the outlook for oil markets may not be all rosy. Dour economic data from the United States could spell trouble, especially for diesel. US diesel demand was down by about 4% in the first five months of this year compared to 2023, according to EIA data.
Analysis:
The fluctuating demand trends in China, Europe, and the US have a direct impact on the oil market. Investors should keep a close eye on these developments as they can affect prices and investment opportunities in the energy sector. For individuals, understanding these trends can help in making informed decisions about their finances, such as planning for potential changes in fuel prices or investments in oil-related assets. Stay informed and stay ahead in the ever-changing world of finance.