By Julian Lee
That is the view of all three major oil forecasting organisations, who have cut their assessments for what they expect in terms of an increase in crude consumption this year. The latest outlooks from the International Energy Agency, the U.S. Energy Information Administration and the Organisation of Petroleum Exporting Countries all show worldwide oil demand growing by less than they did a month ago.
Taking the average of the three agencies’ forecasts, they now expect demand for oil to grow by about 1.2 million barrels a day this year, compared with last. That’s down from 1.3 million a month ago and more than 1.4 million in their forecasts made in January.
The slowing demand growth is creating a problem for the OPEC+ group of countries, who had hoped to be able to end their oil supply restraint this month. Instead, all three agencies agree that they will need to extend their output cuts at least until the end of the year, and possibly beyond.
The IEA, EIA and OPEC all now see global oil stockpiles coming down this year, but only if production restraint continues.
Projecting the most recent month’s OPEC crude production forward for the rest of the year gives a global stock draw of 160 million barrels, according to OPEC, but of only 24 million barrels, according to the IEA. Still, that’s better than a month ago, when the IEA still saw a small build in stockpiles this year.
But there is a catch.
The weakening demand outlook for 2019 is driven to some big downward revisions for the first half of the year, with year on year growth still seen robust in the second half. If assessments for the third and fourth quarters also start being revised down, then the OPEC+ group might need to cut output even further to keep supply and demand balanced.
The IEA now says global oil demand expanded by just 250,000 barrels a day in the first quarter compared with the same period last year. That’s the slowest rate of growth since the final three months of 2011, when the initial effect of the post-financial-crash recovery was wearing off. The other two agencies don’t see the first quarter in such bleak terms, although both are moving in the same direction, cutting their assessments of demand growth for the period from last month’s levels.
The two consumer-side agencies — the IEA and EIA — also see a much weaker picture emerging for the current quarter, a view that is not shared by OPEC – at least not so far.
Temporary factors, such as mild temperatures across the Northern Hemisphere and widespread flooding across the U.S. Midwest hit American oil consumption in the first four months of the year. But demand is expected to recover “on the back of growth in the petrochemical industry and with higher gasoline consumption,” according to the IEA.
That expectation of stronger year-on-year demand growth in the second half of 2019 is the only thing holding up the full-year figures. The IEA has raised its forecast of demand growth in the fourth quarter to a heady 1.78 million barrels a day, from the 1.29 million it saw in January. The EIA, which shared the IEA’s view in January, now sees fourth-quarter demand growth at 1.59 million barrels a day.
The strength is based, in part, on the mandatory switch to low sulfur bunker fuels for ships that comes into effect at the start of next year.
The IEA also published its first forecast for 2020 this month. It makes uncomfortable reading for oil producers, showing that global oil inventories will build at an average rate of 650,000 barrels a day next year, even if the OPEC producers keep output at the current level. That figure is broadly in line with a 550,000 barrels a day build seen by the EIA, which has been publishing 2020 forecasts since January. OPEC will push its own assessments forward to 2020 in its July report. Its outlook may not be any rosier.