Yemisi Izuora/Ijeoma Agudosi
The International Energy Agency, (IEA) has projected that global oil demand growth may slow to 1.2 million barrels a day (mb/d) in 2016.
“Momentum in global oil demand growth, is expected to ease towards its long-term trend as recent props – sharply lower oil prices, colder than-year earlier winter weather and post-recessionary bounces in some countries – are likely to give way,” the IEA said in its World Energy Outlook 2015,
According to the agency, stockpiles of oil at record 3 billion barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/bbl oil.
It explained that global growth is forecast to slow in 2016 to 3.6 percent, warning that “downside” risks to the world economy have grown in recent months. Although the sharp drop in oil prices is a result of oversupply rather than a lack of demand, fears surrounding the health of the global economy are keeping investors on edge, the Agency noted.
While supply appears to have outpaced demand growth in 2015, keeping oil prices subdued at their current level of $44.23 a barrel for benchmark Brent while U.S. sweet crude trades at $41.62, demand growth could slow next year, the IEA said, a factor that could be bearish for oil markets.
It further explained that demand growth has risen to a five-year high of nearly 2 mb/d, with India galloping to its fastest pace in more than a decade. But gains in demand have been outpaced by vigorous production from the Organisation of the Petroleum Exporting Countries, OPEC, and resilient non-OPEC supply, with Russian output at a post-Soviet record and likely to remain robust in 2016 as well.
The net result is brimming crude oil stocks that offer an unprecedented buffer against geopolitical shocks or unexpected supply disruptions.
Factors that have seen global oil demand growth surge in 2015 are “likely to give way” in 2016, the IEA noted, signaling that oil prices could stay lower for longer. Strong gains in Europe and non-OECD Asia took global oil demand growth up to a four-and-a-half-year high in the third quarter of 2015, but a glut in supply resulting from a shale oil boom and OPEC cartel politics has already weighed heavily on oil prices.
The IEA did not see the situation changing anytime soon. “Supportive factors that have recently fuelled consumption are expected to fade. The impact of oil’s steep price plunge on end users is unlikely to be repeated and economic conditions are forecast to remain problematic in countries such as China.”
Despite the glut in oil, it noted that supply shows no sign of ebbing with major Middle Eastern producers pumping at record levels and U.S. stockpiles increasing. Confirming the current plentiful oil supply, the IEA noted that global oil supplies breached 97 mb/d in October, as non-OPEC output recovered from lower levels the previous month.
Non-OPEC refers to oil producers (such as the U.S., Canada and Russia among others) who are not part of the 12-country, Saudi Arabian-led producer group, OPEC. Despite the sharp fall in oil prices, OPEC has refused to cut production which would support prices, opting instead to keep pumping at record levels (exceeding the group’s production ceiling of 30 million barrels a day).