Global crude demand to surpass 100m bbl/day by Q4 2018 – IEA

LONDON (ICIS)–Crude oil demand will surpass in the fourth quarter of 2018 the psychological barrier of 100m bbl/day on the back of 1.4m bbl/day higher annual demand growth as China and India command 44% of the rise in demand, the International Energy Agency (IEA) said on Wednesday.

However, the Paris-based organisation also warned the large crude stocks in developed countries are not showing signs of receding significantly, while crude supply keeps growing as non-OPEC countries continue pumping product, especially the US.

For 2018, the IEA expects demand to average a new record of 99.3m bbl/day, with the first quarter at 98.2m bbl/day, the second at 98.5m bbl/day, the third at 99.9m bbl/day and the fourth with 100.5m bbl/day.

Next year, India will return to its position as one of the largest consumers in the world, said the IEA, after the country digests the 2016 currency reform. However, many caveats need to be added as volatile markets may change the supply/demand dynamics.

“Within the non-OECD [developed countries] complex, Asia accounts for around two-thirds of the potential growth and, in turn, China and India combined contribute two-thirds of the non-OECD Asian gain. Furthermore, so important are these two countries to global demand that they will contribute 44% of the global growth forecast in 2018,” said the IEA.

“Uncertainty regarding oil prices in 2018, however, complicates the picture as many non-OECD countries are heavily dependent upon revenues from oil exports. The IMF [International Monetary Fund] assumed a roughly flat oil price in 2018; but higher prices would adversely impact net importing developing countries, e.g China and India, while lower prices would adversely impact net exporters, e.g in the Middle East and Russia.”

While developing countries will account for much of the growth, several developed markets are already showing signs of having reached their peak crude oil demand, according to the Agency, which reported lower consumption figures for March and April.

According to the Oil Market Report published on Wednesday, weaker crude demand was observed in March in Japan, Korea, the UK, Turkey and Spain, while April’s figures also saw “significantly lower numbers” in China, France, Italy, Spain and Germany.

The decreases in countries like Spain or Germany occurred despite healthy economic growth during the reported months, which may show a change of pattern in energy consumption, with renewable energies gaining ground.

According to the IEA, the projected 1.4m bbl/day expansion in crude demand in 2018 will be largely driven by rebounding industrial demand, with liquefied petroleum gases (LPG), including ethane, accounting for approximately 35% of the projected global demand increase, while gasoil and diesel will account for another 30%. Gasoline and jet kerosene will account for 17% and 12%, respectively, of the projected global growth.

It remains to be seen how healthy demand in developing countries in coming quarters will contribute to ease the global crude oil glut. For the time being, latest data for April showed total stocks within the Organisation for Economic Co-operation and Development (OCDE, the 35 most industrialised nations) actually increasing by more than the seasonal normal, said the IEA.

“For the year-to-date, they have actually grown by 360,000 bbl/day. Our provisional monthly data for May suggests that OECD stocks might, overall, be little changed, but recent US weekly data suggests that rising domestic production, high imports, low exports, and weaker gasoline demand, have combined to send stocks there higher,” said the Agency.

“Based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018.”

The US’ Energy Information Agency (EIA) latest data showed stocks in the country rising, which in turn contributed to losses in crude oil prices. The EIA also reported the US was in 2016, for the fifth year in a row, the global top producer of petroleum and natural gas hydrocarbons.

However, how countries within OPEC comply with cutting or freezing output remains an unknown after their November 2016 agreement – the experiment so far is having mixed results.

According to the IEA, while OPEC countries have broadly implemented their cuts, some members have been “less than wholly diligent” which may affect the effectiveness of the agreement as a whole.

“Iraq has achieved a compliance rate of only 55% so far this year, and Venezuela and the UAE are also laggards. Meanwhile, two OPEC members not included in the deal have recently seen increases in production: Libya’s output has reached nearly 800,000 bbl/day, a level not seen since 2014, and Nigeria has announced the lifting of force majeure for Forcados [a pipeline] exports,” it said.

“If Libya and Nigeria continue to grow their output these extra barrels dilute the value of OPEC’s output accord and contribute to delaying the re-balancing of the market.”

Pictured: A crude oil tanker in China
Source: Imaginechina/REX/Shutterstock