Global oil demand needs to rise faster to absorb OPEC+ hike
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[August 09, 2024] By
Alex Lawler, Dmitry Zhdannikov and Shariq Khan
LONDON (Reuters) - Global oil demand growth needs to accelerate in
coming months or the market will struggle to absorb an increase in oil
supply that OPEC+ is planning to make from October, according to data,
analysts and industry sources.
Oil demand growth in the first seven months of the year from top
consumers the United States and China had failed to meet some
expectations even before renewed fears of a U.S. recession triggered a
global stock and bond sell-off this week.
If the economy slows further, oil demand growth will likely slow with
it. That will mean OPEC+ would either have to delay plans to pump more
oil or accept lower prices for higher supply, analysts said.
"In current circumstances of significant risk of recession, it is
unlikely OPEC+ would move forward with the planned October increases,"
said Gary Ross, CEO of Black Gold Investors and a veteran OPEC-watcher.
The price of oil has fallen below $80 per barrel in August – less than
most members of OPEC+, or the Organization of the Petroleum Exporting
Countries and allies such as Russia, need to balance their budgets.
"Oil demand definitely has a downside risk," said Neil Atkinson, an
independent analyst who previously worked at the International Energy
Agency, citing concern about Chinese and U.S. economies.
"It's very difficult to see how prices can rise significantly if demand
is slower than we thought" he said, adding that he expected OPEC+ to hit
pause on its output increase.
For the first seven months of 2024, China's crude imports totalled 10.89
million barrels per day, down 2.4% on the year, official data showed on
Wednesday.
China's slumping consumption of diesel, as use of LNG-powered trucks
grows, is weighing on domestic fuel demand, as is a sluggish economy
hobbled by a prolonged crisis in the property sector.
In the United States, oil consumption through July has risen by 220,000
bpd on the year to average 20.25 million bpd, according to Reuters
calculations based on government estimates. Demand will need to
accelerate to reach the government's 2024 forecast of 20.5 million bpd.
Whether or not global demand hits the heights needed to absorb
additional supplies this year is difficult to gauge because of a record
variation in where the world's most respected oil demand analysts at
OPEC and the IEA measure demand to date.
There is a time lag on oil consumption data, and preliminary figures are
often revised. That leaves forecasters including best estimates in some
of their demand figures.
OPEC pegs global demand growth at 2.15 million bpd in the first half of
2024, while the IEA estimates it was 735,000 bpd. The IEA advises
industrialized countries on energy policy.
OPEC's estimate of first-half demand growth is little changed from what
it was at the start of the year. The IEA has cut its estimate of
first-half demand growth from 1.19 million bpd forecast in January.
The IEA estimated China's consumption contracted in the second quarter,
while OPEC estimates it rose by over 800,000 bpd. China is one of the
main reasons for the difference in outlooks for the full year, as well
as for the first half.
Global growth would need to accelerate a little in the second half if
OPEC estimates on first-half demand were correct. But if the IEA is
right, demand would need to accelerate rapidly.
The second half is typically the period of highest consumption as the
simple fact of global economic growth increases oil demand and because
it includes the peak driving season, Northern Hemisphere harvest and
purchases to prepare for winter.
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A 3D printed oil pump jack is seen in front of displayed OPEC logo
in this illustration picture, April 14, 2020. REUTERS/Dado Ruvic/Illustration/File
Photo
For demand growth to hit OPEC's full-year prediction, it would need
to accelerate to an average of 2.30 million bpd in the second half,
according to Reuters calculations. Demand needs to grow by 1.22
million bpd in the second half to reach the IEA's full-year
prediction.
OPEC and the IEA are scheduled to update their demand forecasts next
week.
OPEC+ SUPPLY INCREASE
OPEC+ last week confirmed its plan to start raising production from
October with the caveat that it could be paused or reversed if
needed.
The increase is predicated on demand hitting OPEC's forecast, which
would increase the need for oil from the producer group and its
allies. OPEC+ pumps more than 40% of the world' s crude.
Should OPEC's demand prediction be realised, the demand for crude
from OPEC+ countries is forecast to reach 43.9 million bpd in the
fourth quarter, up from production of 40.8 million bpd in June, in
theory allowing room for extra output.
OPEC+ still has a month to decide whether to start releasing the oil
from October, and the group will study oil market data in the coming
weeks, a source close to the group said.
Saudi Aramco CEO Amin Nasser said on Tuesday he expected growth of
between 1.6 million and 2 million bpd in the second half of the
year.
Two OPEC sources said it was unclear if demand was rising as rapidly
as needed to meet OPEC's third-quarter forecast. OPEC did not
respond to a request for comment.
U.S. DEMAND NOT CLEAR
The IEA says that slower economic growth and a shift towards
electric vehicles in China has changed the paradigm for the world's
second-largest economy, which for years has driven global rises in
oil consumption. OPEC sees strong growth persisting.
Early indications of China's August crude imports, such as from data
intelligence firm Kpler, point to a small rebound from July. Two
traders dealing in China's purchases of West African crude said
demand for August- loading oil had been soft.
Global jet demand is expected this year to surpass 2019 levels,
according to the International Air Transport Association, although
IATA said in June that international travel in Asia remained subdued
especially in China.
"The big levers everyone pointed to for demand growth were jet
demand and China," said a source with an oil trading company.
"Chinese demand hasn't been great and jet demand is decent in Europe
but has not fully recovered (from the pandemic)."
In top oil consumer the United States, gasoline demand has proven
hard to gauge: revisions to official data last week showed May
demand at the highest level since August 2019. Earlier estimates and
independent trackers pegged demand below last year.
Dour economic data from the United States could also spell trouble
for oil markets, especially for diesel. U.S. diesel demand was about
4% lower in the first five months of this year than in 2023,
according to EIA data.
(Reporting by Alex Lawler, Dmitry Zhdannikov and Ahmad Ghaddar in
London, Colleen Howe in Beijing, Trixie Yap in Singapore, and Shariq
Khan in New York; Editing by Simon Webb and Matthew Lewis)
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