The closely watched monthly report of the International Energy Agency should bring happiness to consumers of diesel fuel, because almost nothing in it would suggest a significant increase in prices is in the offing.
If there is anything in the report that a transportation company might find discouraging, it could be a conclusion that the global slowdown in oil demand, which the IEA sees as the key factor in keeping prices under pressure, may reflect weakness in economic conditions, rather than a turndown in China that is partly driven by the growth of electric vehicles in that country.
The report lands during a stretch of declining prices that by Tuesday had taken the settlement for Brent, the world crude benchmark, below $70 a barrel for the first time since August 2021. The Tuesday settlement of $2.058 a gallon for ultra low sulfur diesel (ULSD) on the CME commodity exchange was the lowest since late May 2021. Prices have moved higher the past two days.
“The rapid decline in global oil demand growth in recent months, led by China, has fuelled a sharp sell-off in oil markets,” the IEA said. “Global oil demand growth is slowing sharply from its post-pandemic rates.”
Some of the key demand indicators in the report:
- Global oil demand in 2024 is expected to increase 900,000 barrels a day, and it will be up 950,000 next year. By comparison, the increase in 2023 was 2.3 million barrels per day, though that figure was likely inflated by some economic activity in 2022 continuing to be suppressed by the pandemic.
- The first-half increase in demand was 800,000 barrels a day, which means that of an increase of 900,000 barrels per day projected for this year, most has occurred already.
- Western-type economies that are under the banner of the Organisation for Economic Co-operation and Development (OECD) have seen their oil demand growth “essentially stagnant for more than two years,” the IEA said. The growth that has been recorded has been in developing economies. “However, growth has also begun to decelerate in emerging markets amid a harsher economic environment, with 2Q24 the slowest quarter for non-OECD demand since 4Q20,” the IEA said. The pandemic was still in full swing during that earlier three-month period.
Although as the IEA notes the OECD nations aren’t recording demand growth, it is China – which isn’t a member of the OECD but is considered a “partner” – whose slowdown has had the most impact on the weak demand outlook.
Chinese consumption was estimated by the IEA to have contracted 280,000 barrels a day in July compared to a year earlier. The general rate of annual growth has been about 1 million barrels per day in China. That’s about a 9% drop. A 9% downturn in July year-on-year contrasts with what the IEA said was a 9% year-on-year increase in the first half of 2024.
Industrial consumption of petroleum in China has been the key reason for that decline, which has a particular impact on gasoil, which like diesel is a middle distillate and therefore can have a significant impact on global diesel markets.
On a consumer level, the IEA said, “growth for retail-driven gasoline and jet/kerosene has moderated to low single digits.”
And one reason for that, the IEA said, is the inroads that electric vehicles are making in China. “Soaring EV sales are further depressing consumption,” the agency said.
In another shift that has more impact on diesel markets, the IEA said an increasing number of trucks in China are fueled by liquefied natural gas.
The result is that the IEA now estimates total Chinese demand will be up only 180,000 barrels a day in 2024, a forecast drop of 120,000 barrels compared to the agency’s forecast a month ago. The country’s growth was 1.5 million barrels a day in 2023.
As to the concerns about whether the Chinese slowdown is a harbinger of a broader demand slide, the IEA said Brazil’s petroleum consumption “keeps going from strength to strength.” A projected increase in demand from India of about 200,000 barrels a day will make it the country with the largest growth rate, a position long held by China, the IEA said.
On the supply side of the equation, the IEA said a key question is whether the OPEC+ group, which consists of the nations of OPEC and several key non-OPEC oil exporters led by Russia, goes ahead with planned increases from its restrained level that has been in place from last year.
If OPEC+ does begin to increase output in December, as currently planned, “the world oil market will be oversupplied in 2025,” the IEA said.
The two-year run of increases in demand that don’t even hit 1 million barrels a day stands in stark contrast to what the IEA forecasts for non-OPEC production next year, projecting increases of 1.5 million barrels a day. “The United States, Guyana, Canada and Brazil are set to provide a combined 1.1 mb/d of the non-OPEC+ supply increase both this year and next,” the report said.
In 2024, non-OPEC countries that also are not members of OPEC+ produced 600,000 barrels a day more than they were producing in December. By the end of the year, output from those countries will be up 1.5 million barrels per day also, the same forecast for 2025.
More articles by John Kingston
Supreme Court to hear case of truck driver who failed CBD-related drug test
Appeal of Werner nuclear verdict will be heard by Texas Supreme CourtLender
BMO’s Q3 numbers show even more trucking credit deterioration$
