What can happen if global demand for oil does not increase quickly?

Increasing global demand for petrol This must accelerate in the coming months or it will be difficult for the market to accept an increase in oil supply that OPEC + plans to do from October, according to data, analysts and industry sources, Reuters reports.

Oil demand growth in the first seven months of the year from major consumers, the United States and China it fell short of some expectations, even before renewed fears of a US recession fueled a global selloff in stocks and bonds this week. If the economy slows, oil demand is likely to slow with it. That will mean OPEC+ will either have to delay plans to pump more oil or accept lower prices for more supply, analysts said.

“Under the current conditions of significant recession risk, it is unlikely that OPEC+ will move forward with the planned October increases,” said Gary Ross, CEO of Black Gold Investors and a veteran -OPEC watch The price of oil fell below $80 a barrel in August – less than most members of OPEC+, or the Organization of the Petroleum Exporting Countries, and allies such as Russiathey have to balance their budgets.

“Oil demand is definitely at risk of upside,” said Neil Atkinson, an independent analyst who formerly worked at the International Energy Agency, citing concerns about the Chinese and US 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 go on hiatus to increase production.

For the first seven months of 2024, China’s crude oil imports were 10.89 million barrels per day, down 2.4 percent from a year earlier, official data showed on Wednesday.

China’s falling diesel consumption, along with increased use of LNG-fueled trucks, is weighing on domestic demand for the fuel, as the economy slows, hampered by a prolonged housing crisis. In the United States, oil consumption rose 220,000 bpd in the year to July to an average of 20.25 million bpd, according to Reuters calculations based on government estimates. Demand must accelerate to meet the government’s 2024 forecast of 20.5 million bpd.

It is difficult to gauge whether global demand will reach the levels needed to absorb the additional supply this year due to the extreme divergence in demand analysts’ forecasts. the world’s most prestigious oil in OPEC and the IEA estimates of demand so far.

There is a time lag in oil consumption data, and preliminary figures are often revised.

OPEC pegs global demand growth at 2.15 million bpd in the first half of 2024, while the IEA estimates it at 735,000 bpd. The IEA advises industrialized countries on energy policy.

OPEC’s estimate of demand growth in the first half of the year has not changed significantly from earlier in the year. The IEA cut its estimate of demand growth for the first half of the year from 1.19 million bpd forecast in January.

The IEA estimated that China’s consumption held in the second quarter, while OPEC estimated that it rose by more than 800,000 bpd. China is one of the main reasons for the difference in outlook for the full year as well as the first half of the year.

Global growth should accelerate slightly in the second half if OPEC’s first-half demand estimates are correct. But if the IEA is correct, demand should accelerate quickly.

The second half is usually the peak consumption period because the simple fact of global economic growth increases oil demand and because it includes the peak season, the Northern Hemisphere harvest and shopping in preparation for winter.

For demand growth to meet OPEC’s full-year forecast, it would need to accelerate to an average of 2.30 million bpd in the second half, according to Reuters calculations. Demand must rise by 1.22 million bpd in the second half to meet the IEA’s full-year forecast.

OPEC and IEA will update their demand forecasts next week.

OPEC+ last week confirmed its plan to start increasing production from October, with a warning that it could be stopped or reversed if necessary.

The increase based on demand hits OPEC’s forecast, which would boost oil demand from the producer group and its allies. OPEC+ pumps more than 40% of the world’s crude oil.

If the OPEC demand forecast is realized, crude oil demand from OPEC+ countries is expected to reach 43.9 million bpd in the fourth quarter, up from production of 40.8 million bpd in June, theoretically allowing room for production to more.

OPEC+ has a month to decide whether to start supplying 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 Tuesday he expected an increase of between 1.6 and 2 million bpd in the second half of the year.

Two OPEC sources said it was unclear whether demand was growing as fast as needed to meet OPEC’s third-quarter forecasts. OPEC did not respond to a request for comment.

The US demand is unclear

The IEA says that slower economic growth and a shift to electric vehicles in China have changed the paradigm for the world’s second largest economy, which for years has fueled global oil consumption. OPEC believes that growth remains strong.

Early indications of China’s August crude imports, such as those from information firm Kpler, show a slight rebound from July. Two traders who deal with China’s crude purchases from West Africa said August oil demand was weak.

Global aviation demand this year is expected to exceed 2019 levels, according to the International Air Transport Association, although IATA said in June that international travel to Asia remained subdued, particularly in China.

“The big levers that everyone has pointed to for demand growth are aviation demand and China,” said a source at an oil trading company. “Chinese demand has not been high and demand for flights is reasonable Europebut he has not completely recovered (from the epidemic).

In the United States, the largest oil consumer, gasoline demand has been difficult to measure: revisions to official data last week showed that May demand was the highest since August 2019 Earlier estimates and independent administrators were pushing demand lower than last year.

Tight economic data from the United States could also indicate problems for oil markets, especially diesel. US diesel demand was about 4% lower in the first five months of this year than in 2023, according to EIA data.