There’s a bullish outlook for oil even though there are a growing number of potential factors that could undermine demand in coming years.
Despite these problems from trade wars, Brexit and China’s slowing growth rate, the International Energy Agency (IEA) still sees global oil consumption rising 6% over the next five years.
And it sees the US as being the one producer with the capacity to meet that six million barrel a day rise.
Total oil demand will increase from 100.6 million barrels a day (b/d) in 2019 to 106.4 million b/d in 2024. Jet fuel, as a growing number of people around the world travel by air, and petrochemicals, which are used in plastics, will keep oil demand robust, the IEA said.
But the Agency said that despite all the possible hiccups and barriers, there no sign of a peak in oil demand.
“While global oil demand growth is set to ease, in particular as China slows down, it still increases an annual average of 1.2 mb/d to 2024, the IEA said.
The agency said it “continues to see no peak in oil demand, as petrochemicals and jet fuel remain the key drivers of growth, particularly in the United States and Asia, more than offsetting a slowdown in gasoline due to efficiency gains and electric cars.”
In its annual report and forecast, released on Monday, the IEA warned that Brexit could hit oil demand if the departure is ‘disorderly’ (ie a so-called hard Brexit, which is starting to look very possible).
On top of this, the US trade wars with China, Canada, Mexico, and the EU could add to global uncertainty which would, in turn, undermine demand for oil.
“Ongoing trade disputes between major powers and a disorderly Brexit could lead to a reduction in the rate of growth of international trade and oil demand,” the Paris-based intergovernmental organisation said on Monday.
These factors could amplify the slowdown in demand growth between 2019 and 2024 that the IEA expects, largely led by a slowdown in Chinese consumption.
“The economic mood is not encouraging,” it added.
“Confidence in the health of the world economy has deteriorated,” the IEA said.
“Tighter financial conditions, rising trade tensions, slowing Chinese growth and a deceleration in global industrial activity have damped optimism,” the IEA said. Still, even as the rate of consumption moderates there “is no peak in sight” for absolute demand, the IEA said.
The Agency said that on the supply side the US will be the biggest influence over the next five years.
“The United States will drive global oil supply growth over the next five years thanks to the remarkable strength of its shale industry, triggering a rapid transformation of world oil markets according to the IEA’s annual forecast.
“By the end of the forecast, oil exports from the United States will overtake Russia and close in on Saudi Arabia, bringing greater diversity of supply,” the IEA said.
“The United States is increasingly leading the expansion in global oil supplies, with significant growth also seen among other non-OPEC producers, including Brazil, Norway and new producer Guyana.
“It is due to the ability of the US shale industry to respond quickly to price signals by ramping up production. The United States accounts for 70% of the total increase in global capacity to 2024, adding a total of 4 mb/d. This follows spectacular growth of 2.2 mb/d in 2018,” the IEA said.
