Brent crude oil futures have plunged from a high of more than $82 per barrel in early August to near three-year lows at just below $70 per barrel on 11 September.
Amid
changes in the Chinese economy and the rising use of electric vehicles,
global oil demand growth is down sharply this year from the rates seen in
recent years.
The
shift will likely have important implications for oil markets and the global
energy system according to the analysis conducted by the International Energy
Agency (IEA) for over a year.
According
to the IEA’s latest monthly
Oil Market Report,
the
global oil demand is on course to increase by 900 000 barrels per day
(b/d), or 0.9%, in 2024 and 950 000 b/d next year, down from 2.1 million
b/d, or 2.1%, in 2023.
The
IEA says the assessment
is supported by data collected during the first six months of 2024. The data reportedly
confirms a significant slowdown rate of growth in oil
consumption. Global demand rose by 800 000 b/d, or 0.8%, year‑on‑year
during the first half of the year.
The
recent downturn in China has been even more acute than expected, with oil
demand in July declining year‑on‑year for a fourth consecutive month. At the
same time, growth outside of China is tepid at best.
This
weaker demand environment has helped fuel a sharp sell-off in oil markets.
Brent crude oil futures have plunged from a high of more than $82 per barrel
in early August to near three-year lows at just below $70 per barrel on 11
September.
The
slowdown in oil demand could have implications for countries like Uganda that
still plan to open up more areas for oil production. Uganda is also engaged
in negotiation for the planned construction of a refinery in the Albertine Graben.
Normally, the cost of a barrel of
crude oil is factored in when negotiating key agreements like the Production
Sharing Agreements.
The
IEA says China has been the cornerstone of the growth in global oil demand so
far this century. Dynamic factory activity, massive infrastructure
investments, and rising prosperity across a population of over 1 billion
people driving what has, at times, felt like an inexorable expansion in oil
consumption.
Over
the past decade, the annual increase in Chinese oil demand has averaged more
than 600 000 b/d, accounting for more than 60% of the total global average
increase.
China’s share of global demand growth has
expanded since the pandemic. This year, demand outside China will remain 0.3%
below 2019 levels, but in China, consumption will be 18% higher.
China’s
overall economic growth is slowing from the rapid rates seen in previous
decades.
At
the same time, burgeoning domestic sales of vehicles powered by alternative
fuels are cutting into oil demand for road transport, while the development
of a vast national high-speed rail network is constraining growth in internal
air travel. Slowing construction investment amid a prolonged real estate
slump is also weighing on demand.
Burgeoning
domestic sales of vehicles powered by alternative fuels are cutting into oil
demand for road transport, while the development of a vast national
high-speed rail network is constraining growth in internal air travel.
The
market share of battery and plug-in hybrid electric vehicles in China has
grown strongly in recent years.
Outside China, oil demand growth is tepid at best. This environment, combined
with expectations of continued growth in supply – notably from oil producers
in the Americas outside the OPEC+ group, such as the United States, Canada,
Brazil and Guyana – has helped fuel a recent sell-off in oil markets.
Moreover,
this year’s deceleration in global oil demand may mark the start of a period
of more sluggish gains in oil consumption, with major technological, behavioral,
and demographic shifts at work.
.
