x Abu Dhabi, UAEMonday 22 January 2018

IAE predicts slower growth in oil demand

The International Energy Agency forecasts feeble recovery in oil demand as the recession drags on.

Oil demand may recover more slowly next year than previously expected, because there is no evidence the global recession has ended, according to the International Energy Agency (IEA). The Paris-based energy adviser to 28 industrialised nations said it now expected oil demand worldwide to expand by 1.6 per cent next year, or 1.3 million barrels per day (bpd), in place of the 1.7 per cent increase it predicted a month ago. "The evidence of a bottoming out of the global recession is patchy," it said in its latest monthly oil market report. "Despite the amelioration of some economic indicators in a few countries, the most that can be said is that the global economy may be stabilising - but even if this is confirmed, it remains far from evident that growth will resume strongly before the end of the year." The agency predicted global oil consumption would rise to 85.3 million bpd next year from the 83.9 million bpd expected this year. Both estimates are slightly higher than in its previous forecast, because of improving oil demand in developing Asian economies. "However, these upward changes have barely dented the sharp demand contraction expected this year," it cautioned. The IEA said a contraction in global industrial output was a major factor limiting oil demand. "Only in China and India is industrial production growth positive," it said. Most worryingly, the IEA added, "industrial production has seemingly not reached the bottom in the US". As a result, it said, fuel consumption in the developed world could remain depressed for the rest of this year and beyond. In the US, the summer driving season "seems to have fizzled out before getting started", the IEA said. "Green shoots of economic recovery there may be, but motorists have curbed driving and, at the margin, schemes to encourage vehicle fuel efficiency may begin to have an increasing impact." Even in China, where oil demand has recently rebounded, uncertainties persist, it said. In particular, Chinese reforms to domestic fuel pricing - essentially reductions in state subsidies - could slow a recovery in the country's oil consumption. On the other hand, China's continuing purchases of oil for its strategic oil storage programme could boost crude demand for the next few months. An overriding concern was that China's recent economic rebound had been "largely due to an investment surge as opposed to domestic consumption, raising the spectre of overcapacity, rising non-performing loans in state-owned banks, and real estate and financial asset bubbles", the IEA said. This suggested "the country's economic growth could trend below levels seen in recent years". The agency also noted that Saudi Arabia had increased domestic consumption of its own crude oil this summer by burning more of it for electricity generation. Potentially, the development could help absorb "otherwise surplus" crude volumes from the market, it said. However, Saudi Arabia had also raised oil output over the past few months, possibly to satisfy its increased demand for electricity and desalinated water during the peak summer months. The IEA reported that global oil supplies had risen by 570,000 bpd to 85.1 million bpd last month, with two thirds of the increase coming from outside OPEC. Russian oil production had been unexpectedly strong in recent months, it said. tcarlisle@thenational.ae