The outlook for global oil demand is “fragile” amid growing signs of an economic slowdown, which squeezed consumption growth during the first five months of this year to the weakest in a decade, the International Energy Agency said.
The IEA, which advises major economies, trimmed forecasts for oil-demand growth this year and next, and warned that it may lower the estimates further as the U.S.-China trade conflict drags on. World consumption increased by just 520,000 bpd from January through May — about half the rate seen the previous year, and the slowest for the period since 2008, the agency said.
“The situation is becoming even more uncertain: the U.S.-China trade dispute remains unresolved and in September new tariffs are due to be imposed,” the Paris-based agency said in its monthly report. “The outlook is fragile with a greater likelihood of a downward revision than an upward one.”
Brent crude futures slumped into a bear market this week as tensions between Washington and Beijing escalated, and was trading near $57/bbl in London on Friday. In response, Saudi Arabia, the world’s biggest oil exporter, signaled that the kingdom and fellow nations within OPEC will keep production restrained.
The IEA trimmed its estimates for global oil demand growth in 2019 by 100,000 bpd to 1.1 MMbpd, implying a growth rate of about 1.1%. The outlook for 2020 was lowered by 50,000 bpd to 1.3 MMbpd, or a rate of 1.3%.
In the first half of the year, the only significant growth in demand was seen in China, the world’s second-biggest oil user, the IEA said.
Nonetheless, despite the downward economic pressures the agency still anticipates that demand will surge in the second half of the year, tightening markets sharply. Consumption will expand by 1.6 MMbpd in the second half, almost three times the rate seen in the first.
Markets have tightened recently amid production cuts by OPEC and its partners, who collectively pump about half of the world’s supply.
OPEC’s crude output fell 190,000 bpd to 29.71 MMbpd in July, remaining at the lowest in five years, the IEA said. That’s about 940,000 bpd less than will be needed in the third quarter, and so should cause world oil stockpiles to contract, it predicted.
The group’s biggest member, Saudi Arabia, signaled this week that it may be prepared to do even more. The kingdom has contacted other producers in the coalition to discuss further options to contain oil’s slide, according to an official who declined to be identified.
The IEA report indicates that next year Riyadh and its allies may indeed need to cut output further to keep supply and demand in balance. Oil markets face a renewed surplus in 2020 amid growing production from OPEC’s rivals, most notably U.S. shale drillers. The agency expects non-OPEC supply will surge by 1.9 MMbpd this year and then an additional 2.2 MMbpd in 2020.
“Under our current assumptions, in 2020 the oil market will be well-supplied,” the agency said.