IEA: Oil demand growth slows, mainly due to weaker consumption in China

The International Energy Agency (IEA) has lowered its forecast for oil demand growth this year to 1.22 million barrels per day, only about half of last year's growth. The agency said this today in its regular monthly report on the state of the market. According to the agency, weaker consumption in China is the main reason for the slowdown in demand growth. The agency's long-term outlook is in stark contrast with that of the Organization of the Petroleum Exporting Countries (OPEC).

The agency also points to the fact that countries outside OPEC are increasing production. The IEA had previously forecast that demand growth this year would slow to 1.24 million barrels per day.

„The expansionary phase of global oil demand growth that followed the pandemic has largely come to an end,“ the agency said.

It added that weaker global macroeconomic conditions are also likely to constrain growth this year.

North Sea Brent crude, considered the main benchmark for oil prices on global markets, has risen by about six percent since the start of the year and is now trading at around 81 dollars per barrel. This is partly due to disruption to shipping, as Houthi rebels in Yemen have been attacking merchant ships in the Red Sea since last year. Some vessels are therefore taking a safer, but much longer and especially more expensive route around the southern tip of Africa when travelling between Asia and Europe.

Oil prices have also risen since the start of the year because some major oil-producing countries outside the OPEC cartel, such as the United States, experienced production outages in January. Concerns about demand have prevented a larger price increase, as major economies continue to contend with the effects of high interest rates. Central banks are keeping rates high for now to ensure that high inflation recedes permanently.

The Paris-based agency also forecast that oil demand would peak by 2030 as the world shifts to cleaner energy. OPEC sees things differently, however, expecting oil consumption to continue rising over the next twenty years.

On the supply side, the IEA raised its forecast for this year and now expects growth of 1.7 million barrels per day. It had previously forecast supply growth of 1.5 million barrels per day. The agency cites increased supply from producers outside OPEC and their allies, who make up the broader group known as OPEC+. Russia is also part of it.

The IEA now expects oil supply to rise to a record 103.8 million barrels per day, almost entirely due to producers outside OPEC+, including the United States, Brazil and Guyana. Given the strong outlook for supply from countries outside OPEC+, the agency expects a modest increase in oil inventories in the first quarter.