IEA: Oil demand has decreased due to low economic growth

oil demand

The International Energy Agency slashed its estimate for global oil demand growth in 2019 due to the negative signs emerging in the global trade scene, as it revealed in its 2020 energy outlook report.

According to this document, global crude demand declined for the second month in a row in 2019, standing at 1.2 million barrels per day. During the first quarter of the year, it grew by just 0.3 million barrels per day. Estimates in the second quarter so far are that it will remain at 1.2 million barrels. Nonetheless, in its report, the organization stresses that it is expected to reach 1.6 million barrels per day in this period.

Volatility in the oil market

The report indicates that volatility has returned to the oil market, with Brent prices going down from $70 to $60 per barrel.

The IEA says that, until recently, the attention focused on the producers. In this sense, it highlights uncertainty regarding several matters, including weakened production in Venezuela, sanctions against Iran, and the Vienna Pact. This uncertain environment is what led to a rebound in oil prices in European markets to over $70 in early April, which lasted until the end of May.

While it is true that prices have decreased, it does not mean that concerns over supplies have completely disappeared. In this sense, we must remember that oil prices went up on Thursday, initially, by 4%, due to the news of the attacks against two oil tankers in the Gulf of Oman. Nonetheless, the rise slowed down throughout the day to then slightly decrease again on Friday.

Oil demand as a reference

The IEA’s report highlights that the main focus is on oil demand, as economic growth (which pushes demand) weakens.

In May, the Organization for Economic Cooperation and Development (OECD) published its 2019 outlook on global GDP. In it, the organization announced a growth by 3.2%, below the previous forecast.

In this scenario, the growth in world trade has slowed down again since the financial crisis ten years ago, according to data from the Netherlands Bureau for Economic Policy Analysis and several Purchasing Managers’ Indexes.

The IEA expects that by 2020, global oil demand will jump to 1.4 million barrels per day, backed by a solid demand among non-OECD countries and the expansion of petrochemical products.

Impact on consumption

The consequences for oil demand are becoming evident, the report states. In the first quarter of 2019, it grew by just 0.3 million barrels per day; this is the lowest for any quarter since the last quarter of 2011.

The main weakness came from OECD member nations, where demand fell by a significant 0.6 million barrels per day, distributed across all regions.

Several factors influenced this decline, including a warm winter in Japan and the deceleration of the petrochemical industry in Europe. Moreover, modest gasoline and diesel demand in the U.S. was added to a decline of the market perspective as a common issue in all regions.

Slower growth in oil demand

By contrast, oil demand rose by 0.9 million barrels per day in non-OECD nations. However, recent data from China show a rise of 0.2 million in April.

On the other hand, this second quarter of 2019 saw global demand rise by 0.1 million barrels. The figure went own compared with the estimate presented last month for the same period. “For now, however, there is optimism that the final stretch of this year and the beginning of next year will see a better economic picture,” the report stresses.

The OECD believes that the global GDP will grow to 3.4% in 2020 if trade disputes are solved and the trust is rebuilt. This suggests that global oil demand could recover from 1.2 million barrels in 2019 to 1.4 million next year.

For more information, check Energía16

See also: Attacks against oil tankers in the Gulf of Oman increase tensions in the region

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