Global oil demand growth needs to accelerate in the coming months to absorb the planned increase in oil supply by OPEC+ starting in October, according to a Reuters report. Recent data shows that demand growth from major consumers such as the United States and China has been weaker than expected in the first seven months of the year. This slowdown occurred before recent fears of a U.S. recession caused a global sell-off in stocks and bonds.
If the economy continues to slow, oil demand growth could also slow. In this case, OPEC+ may need to delay its planned production increase or face lower oil prices for higher output, analysts warn.
In August, oil prices fell below $80 per barrel, a level that is insufficient for most OPEC+ members, including key allies like Russia, to balance their budgets. In the U.S., oil consumption increased by 220,000 barrels per day (bpd) year-on-year through July, averaging 20.25 million bpd, according to Reuters calculations based on government data. To meet the government’s 2024 forecast of 20.5 million bpd, demand will need to rise further.
However, predicting whether global demand will reach the levels needed to absorb additional supplies this year is difficult due to significant differences in demand estimates from major analysts, including OPEC and the International Energy Agency (IEA).
Oil consumption data is often delayed and subject to revisions, leading forecasters to provide best estimates. OPEC estimates global demand growth at 2.15 million bpd for the first half of 2024, while the IEA estimates it at 735,000 bpd.
Although OPEC’s estimate for first-half demand growth has remained stable, the IEA has reduced its forecast from 1.19 million bpd in January. A key factor in these differing outlooks is China’s oil consumption. The IEA estimates that China’s consumption fell in the second quarter, while OPEC estimates it increased by over 800,000 bpd, significantly affecting the full-year projections.
OPEC+ confirmed last week that it plans to start increasing production in October but has the option to pause or reverse this decision if needed. This increase depends on demand meeting OPEC’s projections, which would boost the need for oil from the group and its allies, who currently supply over 40% of the world’s crude.
If OPEC’s demand forecast is accurate, the need for crude from OPEC+ countries is expected to rise to 43.9 million bpd in the fourth quarter, up from 40.8 million bpd in June. This would theoretically allow for additional output.
OPEC+ has about a month to decide whether to proceed with the planned increase in oil output starting in October. The group will closely monitor oil market data in the coming weeks, according to a source close to the organization. Saudi Aramco CEO Amin Nasser stated last week that he expects demand growth of between 1.6 million and 2 million bpd in the second half of the year.