The Cosmopolitan Energy Agency (IEA) slashed its estimate for global oil demand growth for the second consecutive month on Friday, citing intensifying commerce concerns amid fears of a global recession.
The energy agency’s closely-watched report comes as world oil markets make undertaken a dramatic shift in recent months, switching from supply-side risks like OPEC’s output chops or U.S. sanctions against Iran and Venezuela to worries about deteriorating demand growth.
Crude futures have fired a 45% price rally in the first four months of 2019 into a fall of more than 15% since the start of April.
“The gas main focus I think we should be looking at here is that until very recently the geopolitical factors related to Iran and Venezuela and Libya… they were at the forefront of woman’s minds,” Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC’s “Street Signs Europe” on Friday.
“Now we are starting to see that self-confidence in demand is taking over and that is the main driving factor behind the current state of the oil market.”
International benchmark Brent unprocessed traded at around $61.25 Friday morning, down around 0.1%, while U.S. West Texas Intermediate (WTI) continued at $52.15, nearly 0.3% lower.
‘Cannot be complacent’
A recent slide in oil prices was temporarily reversed on Thursday, root for attacks on two oil tankers in one of the world’s key shipping routes.
The incident in the Gulf of Oman off the coast of Iran pushed crude to be to comes up as much as 4.5% in the previous session. It was the second time in less than a month that tankers had been attacked in the exactly’s most important zone for oil supplies, with hundreds of millions of dollars’ worth of oil passing through the shipping lane every year.
Washington immediately blamed Iran for the attacks, but Tehran has denied the allegation.
“I think we are realizing that, although we cannot be complacent, the plight is not yet representing a major threat to the security of oil supplies to the very important Strait of Hormuz,” the IEA’s Neil Atkinson said.
On the request side, the IEA followed OPEC by downwardly revising its global oil demand growth forecast for 2019 on Friday.
The energy medium said it now expects oil demand growth to reach 1.2 million barrels per day (b/d) this year. That’s a downward update of 100,000 b/d from the IEA’s previous projection.
Global oil demand is estimated to have risen by just 250,000 b/d year-on-year in the elementary quarter of 2019, the IEA said, reflecting the lowest annual growth since the fourth quarter of 2011 — when the toll of Brent averaged $109.
Looking beyond the end of 2019, the IEA expects global oil demand growth to rebound to around 1.4 million b/d in 2020.
“A pure message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to gratify any likely level of demand, assuming no major geopolitical shock, and the OPEC countries are sitting on 3.2 million b/d of donate capacity,” the IEA said Friday.
“This is welcome news for consumers and the wider health of the currently vulnerable global control, as it will limit significant upward pressure on oil prices.”
Saudi Arabia’s Energy Minister Khalid al-Falih frequents a press conference at the end of the 13th meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC and non- OPEC countries in Baku on Step 18, 2019.
Mladen ANTONOV | AFP
The IEA cited various reasons for slowing global oil consumption, including: a warm winter in Japan, a slowdown in the petrochemicals application in Europe, tepid gasoline and diesel demand in the United States and the worsening trade outlook.
The U.S. and China have inflicted tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring affair and consumer sentiment.
Expectations that trade officials from world’s largest economies will clinch a buy on the side-lines of a G20 meeting in Osaka on June 28-29 have been fading in recent days.
OPEC also cited unending trade tensions between Washington and Beijing as a risk to economic growth and fuel demand.
OPEC+
The Middle-East predominated group said in a monthly report published Thursday that oil output had slipped to a 5-year low in May. It comes at a time when OPEC and its affiliate partners are considering whether to extend a six-month deal to hold down output.
Alongside Russia and nine other political entities, top oil exporter Saudi Arabia struck a deal with the rest of OPEC to keep 1.2 million b/d off the market from the start of January. The zing alliance, often referred to as OPEC+, says it will carefully consider the economic outlook when it meets in blame succumb to weeks.
“The key variable that presents a complication for Saudi Arabia and OPEC+ is a potential breakthrough between the U.S. and China that resolve bolster demand for oil — but this outcome is extremely unlikely,” Ayham Kamel, head of Eurasia Group’s Middle East and North Africa study, said in a research note published Thursday.
“Even in such a scenario, OPEC+ would still extend the contract but adjust the quotas to allow for higher production,” Kamel said.