Oil prices fell below $70 per barrel in London on Wednesday for the first time since late 2021
The International Energy Agency reported that the growth of the world’s oil consumption is rapidly slowing down as China’s economy contracts, pushing prices to a three-year low.
There was a daily increase in global consumption by 800,000 barrels per day in the first half of the year, or just over one-third as much as in the same period of 2023. According to the monthly report from the advisor to major economics, this rate is the lowest since the 2020 pandemic when the oil demand crashed.
Even though China’s economic growth is slowing down, penetration of electric cars is entering the transport system at a very rapid pace, says Faith Birol, the agency’s executive director, in an interview in Paris.
Oil prices fell below $70 per barrel in London on Wednesday for the first time since late 2021. It was due to worries about data from the US and China, the two biggest oil consumers in the world. The decline has not significantly reversed, even though Libya’s output was severely restricted and the OPEC+ alliance extended supply limitation.
The outlook is significantly worse for the upcoming year. Even if OPEC+ led by Russia and Saudi Arabia, abandons the plans to gradually resume restoring the suspended supply, there would be a surplus every quarter.
According to IEA predictions, the world oil demand will peak before the end of the decade, and the current decline supports the agency’s hypothesis that this may be the case, according to Birol.
Chinese demand declined in July for the fourth consecutive month. China’s oil imports have decreased to their lowest level in over two years due to an economic downturn characterized by poor consumer confidence.
China’s consumption decreased by 280,000 barrels per day in July, compared to an increase of around 1 million barrels per day in the preceding 12 months, and the country will only grow its consumption by 180,000 barrels per day overall, the research states.
The organisation maintained mostly unchanged predictions for the world’s oil consumption, predicting an increase of less than 1%, or 900,000 barrels per day, for this year and 950,000 barrels per day in 2025. That is less than the rise projected by many other forecasts, including JPMorgan Chase & Co. and Citigroup Inc., which stand at 1.5 million and 1.3 million, respectively, for 2024.
According to Vitol Group CEO Russell Hardy, the country’s petrol usage may plateau this year or next as the country gradually transitions to electric cars. Faltering demand presents a challenge for the Organisation of Petroleum Exporting Countries and its allies. The 23-nation group had planned to start slowly reviving 2.2 million barrels a day of idle output with an initial tranche next month but has chosen to pause the first hike until December.
It could be a greater challenge for OPEC+ because of its rival producers since they have profited from the cartel’s efforts to sustain prices. The IEA estimated that the non-OPEC+ output would rise by 1.5 million barrels per day this year and the upcoming year by more than 50% faster than the growth of oil consumption around the world. The US, Brazil, Canada, and Guyana will be the main cause of the increases.
The IEA claims that even if OPEC+’s intention to resume 2.2 million barrels per day is abandoned entirely, an excess will continue to develop.
Even if its extra curbs were to remain in place, OPEC+ may be staring at a substantial surplus, as non-OPEC+ supply is rising faster than overall demand, barring a prolonged stand-off in Libya, the IEA stated.