According to the International Energy Agency’s latest report, the growth of global demand for oil has slowed faster than expected. The agency’s September Oil Market Report slashed its forecasts for global oil demand in 2016 and 2017 – largely due to changing conditions in the global economy.
The authors of the IEA report noted: “Global oil demand growth is slowing at a faster pace than initially predicted. For 2016, a gain of 1.3 million barrels a day is expected.” This figure is 0.1 million barrels per day lower than in the agency’s previous forecasts. Demand is expected to ease further downward, “to 1.2 million barrels per day in 2017” as “underlying macroeconomic conditions remain uncertain”.
Despite this falling demand, oil supply is not expected to fall
As the IEA noted, “recent pillars of demand growth China and India are wobbling”, while in general “economic worries in developing countries haven’t helped either”. However, slowing demand is not just the result of trouble in emerging markets. The report’s authors also expressed concerns over the strength of the US economy, noting that “momentum in the US has slowed dramatically”, while at the same time “unexpected gains in Europe have vanished”.
Yet despite this falling demand, supply is not expected to fall. It is anticipated that “supply will continue to outpace demand at least through the first half of next year”, with global inventories continuing to grow. Production is continuing to expand despite sustained soft prices and resulting investment cuts, albeit it a slower pace than in 2015. “As for the markets return to balance”, according to the IEA, “it looks like we may have to wait a while longer.”
With global demand weakening alongside global supply increasing, participants of September’s OPEC meeting in Algiers will be under increased pressure to reach a consensus on capping or cutting output– although the likelihood of any meaningful agreement still appears slim.