- Global oil demand growth is experiencing a marked slowdown. The gains in the first half of 2024 amounted to 800,000 barrels per day (kb/d) year-on-year, the lowest level since 2020. The primary reason for this decrease is the sharp decline in China's consumption, which saw a year-on-year contraction for the fourth consecutive month in July, decreasing by 280 kb/d. The average annual increase for 2024 is projected at 900 kb/d, a significant drop from last year’s 2.1 million barrels per day (mb/d), bringing the total demand close to 103 mb/d. A slight uptick of 950 kb/d is forecasted for 2025, but growth will still be restrained.

- Global oil supply edged up by 80 kb/d in August, reaching 103.5 mb/d. This increase was offset by disruptions in Libya, where a political conflict affected production, and maintenance in Norway and Kazakhstan. However, rising output from Guyana, Brazil, and other regions compensated for these losses. This year's annual supply growth of 660 kb/d is expected to jump to 2.1 mb/d by 2025. Non-OPEC+ nations are set to boost supply by 1.5 mb/d both this year and next, while OPEC+ output may drop by 810 kb/d in 2024 but could rise by 540 kb/d in 2025, assuming voluntary cuts persist.

- Global refinery activity is predicted to increase by 440 kb/d, reaching 83 mb/d in 2024, with further growth of 630 kb/d anticipated in 2025, bringing throughput to 83.7 mb/d. However, weaker-than-expected refinery runs in China during July, combined with deteriorating profit margins, are dragging down the overall forecast. Cracking margins briefly dipped into negative territory in Europe and Singapore, while margins on the U.S. Gulf Coast, though more resilient, have fallen by two-thirds compared to the previous year.

- In July, global oil inventories fell by 47.1 million barrels (mb), primarily driven by decreases in crude oil, natural gas liquids (NGLs), and feedstocks, which collectively dropped by 75.5 mb. Meanwhile, oil products saw an increase, hitting their highest level since January 2021. OECD industry stocks experienced a counter-seasonal decline of 12.3 mb in July, standing 78.5 mb below the five-year average. Preliminary data indicate further stock declines in August.

- Oil prices took a significant hit in August and early September, with ICE Brent futures plunging by roughly $10 per barrel (bbl) due to concerns over weakening Chinese demand and global economic challenges that amplified oversupply fears. Investor sell-offs exacerbated the downward trend, with speculative holdings on exchanges reaching multi-year lows. At the time of writing, Brent crude was trading around $70/bbl, the lowest level since late 2021 and down $20/bbl from its peak in April 2024.

The End of the Boom

The rapid slowdown in global oil demand, particularly driven by China, has triggered a sharp downturn in the oil market. Brent crude oil prices dropped from over $82/bbl in early August to just under $70/bbl by September 11, reaching nearly a three-year low. This decline came despite significant supply disruptions in Libya and continued reductions in crude oil inventories.

As predicted in earlier oil market reports, the post-pandemic surge in global oil demand is tapering off. Data covering 80% of global oil demand for the first half of 2024 show that consumption increased by 800 kb/d year-on-year, a significant drop from the 2.3 mb/d growth in 2023, but close to initial projections. For the full year, global demand is expected to rise by 900 kb/d in 2024 and 950 kb/d in 2025.

China’s economic slowdown has led to a reduction in oil consumption for the fourth consecutive month in July, with a drop of 280 kb/d year-on-year. This contrasts sharply with the 1 mb/d average growth over the previous 12 months and the post-COVID surge of 1.5 mb/d in 2023. China's oil demand growth for 2024 is now projected at only 180 kb/d due to a broader economic downturn and a faster shift to alternative energy sources. The surge in electric vehicle (EV) sales is cutting into road fuel demand, while the expansion of a large-scale high-speed rail network is curbing growth in domestic air travel. These structural changes in China’s economy and transportation systems are detailed in recent reports such as Oil 2024 and the World Energy Outlook 2023.

Beyond China, oil demand growth is minimal. U.S. data show a sharp drop in gasoline deliveries in June, following unexpected strength in May. In fact, gasoline consumption in the U.S., the world’s largest oil consumer, declined year-on-year in five of the first six months of 2024. With sluggish economic growth and persistent structural challenges, oil deliveries continue to shrink in several advanced economies, leaving their demand nearly 2 mb/d below pre-pandemic levels. With China’s oil demand weakening and only modest gains or declines seen in other countries, these trends support predictions that global demand will likely plateau by the end of the decade.

In an effort to counteract falling oil prices, Saudi Arabia and its OPEC+ partners announced in early September a two-month delay in their planned reduction of voluntary production cuts. This postponement provides time for the group to reassess next year’s demand outlook, the effects of Libya's supply outages, and their strategy for phasing out the additional 2.2 mb/d production curbs by the end of 2025. However, with non-OPEC+ supply growing faster than demand, OPEC+ could face a substantial surplus even if these extra production cuts remain in place. As the market evolves rapidly, accurate energy data and impartial analysis will become increasingly critical.

BY WPB