Analysis: Lower oil prices defy strong forecast for global demand

LONDON, Sept 16 (Reuters) – Oil prices have fallen by around a quarter in the past three months, largely on fears of a prolonged slump in global energy demand. But no major forecaster actually predicts one.

Two of the most-watched predictors of global oil demand, the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) – the West’s energy watchdog – see its growth between 2% and 3% this year and next.

That’s nearly double the annual average of the decade before the Covid-19 pandemic in 2020, when annual growth in global oil consumption averaged 1.2 million barrels per day (bpd).

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Despite economic storm clouds from Beijing to Washington, neither forecaster expects the post-pandemic rebound in oil consumption to be significantly marred by a possible recession.

“We are still optimistic,” OPEC’s new secretary general, Haitham Al Ghais, told Reuters last month. “In 2023 there will be a slowdown in growth, but it won’t be something that we currently expect to be below historical norms.”

Generally bullish, the group of 13 oil-exporting countries expect demand to increase by 3.1 million bop this year and 2.7 million next year.

The IEA – which this week acknowledged that demand growth will stagnate in the last three months of this year – still expects a 2 million bpd increase in overall oil consumption in 2022, followed by 2 .1 million in 2023.

And the big Wall Street banks are adopting a similar tone. Investment bank Goldman Sachs forecast in August that demand would rise next year by 2 million barrels – despite signs of an economic slowdown from China, to Europe and the United States.

JP Morgan, meanwhile, reaffirmed this week that oil demand growth will remain resilient, citing “our expectation that the global economy will stay out of recession.”

In the oil markets, the mood is darker. Pushed briefly to nearly $140 a barrel in March by Russia’s invasion of Ukraine, prices suffered the biggest 90-day fall since the start of the Covid pandemic – and, before that, major plunges in 2014-15 and 2008-09.

For Swiss asset manager Julius Baer – whose view that the price of benchmark Brent crude oil will average $95 this year is among the most bearish – the equation is simple: supply exceeds demand.

“We are still seeing demand growth, mainly in emerging markets, but we are also seeing stagnant demand in the western world and in China,” said Norbert Rucker, head of economics at Julius Baer.

In addition to strict Covid-19 restrictions in many Chinese cities that have slowed economic activity, oil demand there has recently been sapped by temporary refinery maintenance, industry experts note.

Neil Crosby, senior oil analyst at consultancy OilX, noted that leading forecasters like the IEA have downgraded their outlook for oil demand slightly, but bearish investors were anticipating a much more drastic impact from the slowdown.

“No one is deeply wrong per se, but inevitably at some point these two signals will have to converge and probably somewhere in the middle,” Crosby told Reuters.


A global recession remains possible, according to the International Monetary Fund. The United States has gone through two quarters of negative growth and Chinese growth remains hampered by COVID-19 restrictions and a real estate crisis.

Fuel consumption in the Organization for Economic Co-operation and Development (OECD) group of prosperous nations is expected to decline in the second half of this year, the IEA said in its monthly oil report this week.

But that will be offset somewhat by growing demand for jet fuel for air travel and a move toward using more oil for power generation as Russia closes gas taps to European countries, said the IEA.

Demand growth this year has been mostly concentrated in the first half, an IEA spokesman told Reuters. The spokesman added that his forecast for robust demand growth next year was partly based on expectations that China’s Covid restrictions will be eased and the world’s second-largest economy will rebound.

In another positive signal for demand, U.S. refiners including Marathon (MPC.N) and Valero (VLO.N) told investors last month that they plan to run full steam ahead to replenish fuel inventories. which have reached near historic lows. year. Read more

There are signs that some market participants may be looking to buy lower prices, encouraged by developments such as the prospect of a nuclear deal for Iran that would have returned large volumes of oil supplies to international markets. .

Investors raised their net long positions in Brent crude oil futures in the last week of August to a nine-week high, according to exchange data, before retreating slightly.

“Recent geopolitical developments…should be bullish for energy, but prices have yet to react,” JP Morgan said. “We advocate buying the dip.”

Key to the oil market outlook could be China, the top fuel importer, where the economy slowed in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a real estate crisis.

Ed Hirs, professor of energy economics at the University of Houston, said maintenance of Chinese refineries over the summer and not economic malaise could explain the reduction in imports and may have temporarily contributed to lower world prices.

“The selling off and the price drop is really related to China not taking in 750,000 barrels of crude per day for the last month and a half…for a nearly 0.75% drop in demand ( world), you would see the price go down 15-20%, so that’s about it.”

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Reporting by Noah Browning Editing by Daniel Flynn

Our standards: The Thomson Reuters Trust Principles.

Stephanie Kelly

Thomson Reuters

New York-based correspondent covering the US crude market and member of the energy team since 2018 covering oil and fuel markets as well as federal renewable fuels policy.

Laura Sanicola

Thomson Reuters

Oil and energy reports, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.

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