IEA Glogal Oil Demand
Introduction….We’ve been focusing most of our attention in relations to oil pricing to the supply side of the equation. However, when the demad side increases prices also increase.
World oil demand will rise much more than expected this year… the International Energy Agency (IEA) said on Thursday, in the latest sign that the collapse in oil prices is helping to boost fuel use.
The agency in its monthly report raised its forecast for global oil demand growth in 2015 by 280,000 barrels per day (bpd) to 1.40 million bpd, bringing demand this year to almost 94 million bpd.
“Recent oil market strength of course partly stems from unexpectedly strong global oil demand growth,” said the IEA, which advises industrialised nations on energy policy.
Oil prices have staged a recovery this year after hitting a near six-year low close to $45 in January. Prices collapsed from $115 in June 2014 in a decline that deepened after OPEC refused to prop up prices and chose instead to defend its market share.
By 0800 GMT on Thursday, benchmark Brent crude was trading around $65.75 a barrel.
Strong supply...As well as resurgent demand, the IEA report also pointed to strong supply. Production by the Organization of the Petroleum Exporting Countries rose to 31.33 million bpd in May, its highest since August 2012, and is likely to remain above 31 million bpd in coming months, the IEA said.
And the IEA raised its forecast of supply growth from non-OPEC producers this year by 195,000 bpd to 1 million bpd, citing an upward revision to U.S. data and fewer summer maintenance shutdowns in other regions.
“Lower oil prices and a drop in capital spending are taking time to curb non-OPEC supply,” the report said.
“Despite signs of a slowdown in non-OPEC supply, notably in the U.S., global production growth remains exceptionally high.”
One omission in IEA’s projections for the years after 2016…The middle class is not growing significantly in the United States and other G7 countries. Instead the largest increase in middle class will be Asia Pacific, Africa, South and Central America. In fact, global middle class is expected to rise from two billion to five billion people by the year 2050. We know that rising middle class want more stuff, bigger houses, nicer automobiles which all take significantly more oil.
Conclusion…Its reasonable to expect prices to rise the remainder of the year. And the EIA’s future oil growth demand my be understated if we ignore the worldwide middle class growth.
Sources: “World oil demand jumps after price slump – IEA,” Rueters, by Christopher Johnson and Alex Lawler, June 11, 2015: “The rise of the middle class,” BBC, by Linda Yueh, June 19, 2013; “Global Oil Demand Growth,” International Energy Agency, 2000 to 2020