Global oil demand growth is experiencing a slowdown, with expectations of easing to 1.2 million barrels a day (mb/d) in 2024 and further to 1.1 mb/d in 2025, signaling a potential peak in consumption within the decade, according to the International Energy Agency (IEA).
This deceleration in oil demand is attributed primarily to a return to normal growth patterns following the disruptions of 2020-2023, marked by the Covid-19 pandemic and subsequent global energy crises triggered by Russia’s invasion of Ukraine, the IEA report said.
Despite the projected deceleration, the anticipated level of oil demand growth remains largely in line with pre-pandemic trends, even amidst subdued expectations for global economic growth and increased adoption of clean energy technologies.
In 2022 and 2023, oil consumption surged by over 2 mb/d as economies rebounded from the pandemic shock, driven by spikes in personal mobility and pent-up demand for travel and tourism.
The absence of declines in oil prices or sudden economic accelerations makes it unlikely that global oil demand growth will approach the levels seen in 2022 and 2023. The pace of gains slowed notably in the latter half of 2023 and continued into 2024.
The dependence on China for global oil demand growth was pronounced in 2023, with the country contributing over three-quarters of the global increase in demand. However, projections indicate a considerable decrease in China’s contribution in 2024, leading to a broader global slowdown.
While China has been a major driver of oil demand growth in recent years, factors such as expected economic slackening and rapid adoption of oil-substituting technologies like electric vehicles (EVs) are likely to diminish its role in future growth.
The aviation sector, another significant driver of oil consumption, witnessed a steady recovery post-pandemic, particularly in air traffic. However, gains have moderated since the first half of 2023, with forecasts indicating a smaller increase in demand for jet fuel/kerosene in 2024.
Structural factors, including the rise of EVs, improvements in vehicle fuel economies, and efforts to reduce oil usage in power generation, are expected to lead to a gradual easing of oil demand growth over the coming decade, potentially culminating in a peak in demand by the turn of the decade.
Despite the transformative trends in clean energy technologies, oil remains vital to the global economy, with certain applications lacking easily substitutable alternatives. The decline in global oil demand post-peak is expected to be gradual, with demand remaining close to current levels for some time. However, the convergence of cooling Chinese demand growth and significant progress in clean energy transition technologies signifies a consequential period of transformation for the oil market.
In its latest Oil Market Report for April 2024, the IEA said global oil demand will be reaching 1.6 million barrels per day (mb/d) in the first-quarter of 2024, falling 120 kb/d below previous forecasts. This dip is attributed to particularly weak deliveries in OECD nations.
The report underscores that the post-Covid rebound in oil demand has largely concluded, with factors such as vehicle efficiencies and the expanding electric vehicle (EV) fleet further dampening demand growth. Projections for 2024 and 2025 indicate a slowdown to 1.2 mb/d and 1.1 mb/d, respectively.
Non-OPEC+ countries, led by the United States, are anticipated to drive world supply growth through 2025. For 2024, global output is forecasted to increase by 770 kb/d to 102.9 mb/d. Non-OPEC+ production is expected to expand by 1.6 mb/d, while OPEC+ supply could decrease by 820 kb/d if voluntary cuts persist. In 2025, global growth could rise to 1.6 mb/d, with Non-OPEC+ projected to lead gains by rising 1.4 mb/d, while OPEC+ output might increase by 220 kb/d if curbs are maintained.
Furthermore, global refinery throughputs are expected to rise by 1 mb/d to 83.3 mb/d in 2024, which is 160 kb/d less than in the previous month’s report. This decrease is attributed to lower Russian runs, unplanned outages in Europe, and subdued Chinese activity. Throughputs are projected to increase by 830 kb/d to 84.2 mb/d in 2025, with non-OECD growth of 1.1 mb/d more than offsetting declines in the OECD.
Observations of global oil inventories reveal a rise of 43.3 mb in February, reaching a seven-month peak, with oil on water hitting its highest level in 15 months. However, on-land stocks fell to their lowest levels since at least 2016. OECD industry stocks decreased by 7.6 mb in February, remaining 65.1 mb below the five-year average. Early data suggests that they built by 22 mb in March.
ICE Brent crude futures surged to a six-month high of $90 per barrel in early April amidst escalating tensions in the Middle East, attacks on Russian refineries, and an extension of OPEC+ output cuts through June. The strength in crude prices was bolstered by bullish investor sentiment, with exchange net fund positions in Brent rising to their highest level in a year.
GreentechLead.com News Desk