IEA cuts 2024 oil demand forecast on sharp slowdown in Chinese economy

Oil consumption in the world's second-largest economy declined for a fourth consecutive month in July

The Bund waterfront area in Shanghai. China's economic slowdown and a shift towards alternative energy sources are fuelling a dip in oil consumption, the International Energy Agency says. Bloomberg

The International Energy Agency on Thursday slashed its 2024 oil demand growth forecast, citing a “rapidly slowing” Chinese economy.

Global oil demand growth is now expected to expand by 900,000 barrels per day this year, 70,000 bpd less than its previous estimate, the IEA said in its monthly oil market report.

China’s crude demand is projected to expand by only 180,000 bpd this year as an economic slowdown and a shift towards alternative energy sources reduce oil consumption, the agency said.

“Surging electric vehicle sales are reducing road fuel demand while the development of a vast national high-speed rail network is restricting growth in domestic air travel,” the IEA said.

The recent slowdown in China has seen its oil consumption declining for a fourth consecutive month in July, by 280,000 bpd year-over-year, the agency said.

China's post-Covid economic boom was short-lived, as property market woes, weak consumer spending, and manufacturing slowdown hampered its recovery.

“Outside of China, oil demand growth is tepid at best,” the IEA said.

Petrol use in the US, the world’s largest oil consumer, declined year-over-year in five out of the first six months of 2024, the agency said.

Oil demand in advanced economies could be nearly 2 million bpd lower than pre-pandemic levels this year on structural headwinds and weak economic growth.

“Current trends reinforce our expectation that global demand will plateau by the end of this decade,” the agency added.

Earlier this month, the Opec+ alliance delayed by two months the start of their planned easing of voluntary production cuts amid a sharp drop in oil prices.

Brent, the benchmark for two-thirds of the world’s oil, has lost more than a fifth of its value since reaching a high of $91 a barrel in April this year.

Although prices initially rose due to a supply disruption in Libya, oil quickly lost those gains and continued to decline as traders refocused on demand in China and the US.

“The delay gives the alliance some time to further evaluate demand prospects for next year, as well as the impact of Libyan outages,” the IEA said.

“But, with non-Opec+ supply rising faster than overall demand – barring a prolonged stand-off in Libya – Opec+ may be staring at a substantial surplus, even if its extra curbs were to remain in place.”.

The IEA said that global oil supply increased by 80,000 bpd to 103.5 million bpd in August.

Production disruptions from a political crisis in Libya and maintenance work in Norway and Kazakhstan were offset by higher output from Guyana, Brazil, and other regions, the agency added.

On Wednesday, Opec lowered its oil demand growth forecast for 2024 and 2025 for the second consecutive month on slowing consumption in major economies.

Opec expects global oil demand to grow by 2 million bpd this year, down 80,000 bpd from the group’s previous estimate.

The producer alliance also lowered its forecast for 2025 crude demand growth to 1.74 million bpd, down from 1.78 million bpd.