Global oil demand faces sharp slowdown as economic woes bite, IEA warns

The International Energy Agency (IEA) has signalled a significant deceleration in global oil demand growth, citing economic weakness in key nations. Bloomberg cited the monthly report, wherein the IEA slashed estimates for the final quarter of 2023, reducing consumption growth by nearly 400,000 barrels a day. The report suggests a pronounced slowdown in oil demand, attributing it to the ongoing deterioration in the macroeconomic climate globally.

The IEA points to evidence of a diminishing momentum in oil demand growth, stating, “The increasingly apparent loss of oil demand growth momentum reflects the deterioration in the macroeconomic climate”.

The economic downturn is impacting crude prices, which recently hit a five-month low below $73 a barrel in London. The decline, around 23 per cent since late September, is linked to concerns over oversupply and China’s economic outlook, coupled with increased oil output from various exporters.

Despite OPEC+ announcing fresh production cutbacks on November 30, aiming to eliminate an anticipated oversupply in the first quarter, the IEA notes that this move will come at a cost for the coalition. It predicts that OPEC+ will witness its market share reduced to the lowest level since its formation seven years ago. The report also highlights the impact on the market dynamics, with a surge in supply from the US, squeezing out traditional Middle Eastern producers like Saudi Arabia.

The IEA underscores the challenge for key producers in defending their market share and maintaining oil prices, especially with the continuous rise in global output and a simultaneous slowdown in demand growth. The report emphasises that the growth in American oil production, exceeding 20 million barrels a day in September, is contributing to the complexity of the situation.

Europe, Russia, and the Middle East are the driving forces behind the IEA’s downgrade of fourth-quarter demand estimates. Europe, in particular, is facing a softening demand due to a broad manufacturing and industrial slump, along with headwinds from higher interest rates.

While global oil demand is expected to increase substantially this year by 2.3 million barrels a day, reaching a record average of 101.7 million a day, the IEA anticipates a significant slowdown next year. Growth is projected to decrease by approximately 50 per cent to 1.1 million barrels a day as the post-pandemic consumption rebound subsides, and consumers shift towards more efficient or electric vehicles. The agency suggests that the rise in consumption can likely be met by a corresponding increase in non-OPEC+ supplies.

This anticipated slowdown aligns with the goals agreed upon at the COP28 climate talks in the United Arab Emirates, which concluded with a pledge to transition away from fossil fuels.

(With inputs from Bloomberg)

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