Global oil demand growth is taking a sharp hit from a broad-based slowdown in the Chinese economy, the International Energy Agency (IEA) said.
Surging electric-vehicle (EVs) sales are also curbing Chinese demand for oil-based road fuels, the agency said in its monthly report. Note that conventional vehicles would rely solely on oil-based fuels to power their vehicles. EVs in contrast would tap from a grid that uses a broad range of fossil and alternate fuels to power them. In addition, the development of a vast national high-speed rail network in China is restricting growth in domestic air travel, curbing petroleum demand even further.
As a result, Asia’s largest economy saw a year-on-year decline in oil consumption for a fourth straight month in July, the IEA said, noting that for this year, the country's oil demand would expand just 180 Mb/d. And due to the weaker Chinese demand, global oil usage is set to grow 900 Mb/d in 2024 to roughly 103 MMb/d, while next year’s growth is pegged at 950 Mb/d. These pale vastly with last year’s growth rate of 2.1MMb/d.
This is significant because for years, oil traders held Chinese economic development as pivotal to growth in oil consumption globally. The recent bearish demand data and outlook have sent Brent crude oil prices tumbling hard in recent weeks, falling under $70/bbl for the first time since 2021.
The IEA isn't alone in cutting expectations for oil demand. Oil producer group OPEC this month also lowered its annual demand forecasts through 2025, although it didn't specify why. It now pegs consumption at 104.32 MMb/d for 2024, down 80 Mb/d from the previous estimate; next year's oil usage is seen at 106.11 MMb/d, down 12 Mb/d from last month's report.
Meanwhile, the world’s supply is rising despite production shut-ins in Libya due to a political dispute and maintenance in Norway and Kazakhstan. Higher non-OPEC+ volumes, notably from Guyana and Brazil, have offset those curtailments. Annual supply gains are seen at 660 Mb/d this year and 2.1MMb/d in 2025. That said, OPEC+ expected volumes may fall by 810 Mb/d in 2024 if voluntary cuts stay in place. In early September, Saudi Arabia and its OPEC+ allies said they would push back plans to unwind their extra voluntary production cuts to December 1, from October 1.
