IEA sees global oil demand growth at halt in 4Q

The IEA today said global oil demand growth will come to a halt in the final three months of this year, and with supply outpacing demand into the second quarter of 2023 there should be a "much needed" build in stocks.

In its new Oil Market Report (OMR), published today, the Paris-based institution said demand growth is being stymied by Covid-19 lockdowns in China and slowing OECD economies.

"Growing expectations that high energy costs, especially for gas, and rising interest rates will eventually bring demand destruction are darkening the global outlook," it said.

The IEA cut its demand growth forecast for this year to 2mn b/d from 2.1mn b/d in its previous monthly OMR. It said demand growth has slowed from 3.5mn b/d in the first half of this year to 1.1mn b/d in the current quarter. This will come "grinding to a halt" in the October-December period, when its expects demand from OECD countries to contract.

As an example of European malaise, the IEA said demand fell in Germany in July, a month when oil use would typically increase.

The hits to demand from slowing economies are counterbalanced, just as in last month's report, by more use of oil in power generation and by gas-to-oil switching. The IEA expects this to deliver additional demand of around 700,000 b/d in the fourth quarter of this year and the first three months of 2023 compared with the normal seasonal trend, an increase of 100,000-150,000 b/d since its prior report. It said between 400,000-500,000 b/d of this will be in Europe, with much of the rest in Asia–Pacific, primarily utilising gasoil, fuel oil and refinery gas.

It puts 2023 demand growth at 2.1mn b/d, broadly unchanged from its August OMR.

On supply the IEA forecasts 4.8mn b/d growth this year, to 100.1mn b/d, and 1.7mn b/d growth in 2023, to a record 101.8mn b/d. Saudi Arabia and the US will drive much of this. The IEA's estimate for the call on Opec+ crude in the current quarter is more than 1mn b/d below what the group produced in August.

The IEA's preliminary data for August put OECD industry inventories up by 5.3mn bl. Its final data for July show a 43.1mn bl increase, including a counter-seasonal crude stockbuild and an increase in products inventories at twice the normal seasonal rate, which took the overall level to 2.705bn bl. This was 274.9mn bl below the 2017-21 average, the smallest deficit since November 2021.

By Ben Winkley