(Sept 12): Global oil demand growth is “slowing sharply” as China’s economy cools, pushing prices to a three-year low, the International Energy Agency said.

World consumption increased by 800,000 barrels a day in the first half of the year, barely a third of the expansion in the same period of 2023, the adviser to major economies said in a monthly report. It’s the lowest rate since oil demand crashed during the 2020 pandemic.

“Chinese economic growth is slowing down, and the penetration of the transportation system by electric cars is going at a very strong pace,” Fatih Birol, the agency’s executive director, said in an interview from Paris.

Oil prices slumped below US$70 a barrel in London on Wednesday for the first time since late 2021 on concern over data from both China and the US, the world’s top two oil consumers. A major disruption to Libyan output and prolonged supply curbs by the Opec+ alliance have done little to arrest the slide.

The outlook is even weaker for next year, when there will be a surplus each quarter even if Opec+, which is led by Saudi Arabia and Russia, abandons plans to gradually start restoring halted supplies.

The IEA has predicted that global oil demand will stop growing before the end of the decade, and the current slowdown reconfirms the agency’s expectation that a “peak may be coming,” Birol said.

Chinese demand contracted in July for a fourth straight month, and fuel use elsewhere is “tepid at best,” the report said. Beijing’s oil imports have dwindled to the lowest in almost two years amid an economic slowdown marked by weak consumer confidence.

In July, China’s consumption fell by 280,000 barrels a day, compared with an increase of about one million a day in the previous 12 months, and for the year as a whole will expand by just 180,000 barrels a day, according to the report.

The agency kept forecasts for global oil demand broadly unchanged, projecting growth of 900,000 barrels a day for this year and 950,000 barrels a day in 2025, or less than 1%. That’s lower than many other forecasters, such as JPMorgan Chase & Co and Citigroup Inc, who expect growth in 2024 of 1.3 million and 1.5 million respectively.

But the IEA’s bleak assessment of Chinese consumption is widely shared. The country’s gasoline consumption may stop growing this year or next as its vehicle fleet is “slowly changing toward electric vehicles,” Russell Hardy, chief executive of trading giant Vitol Group, said this week.

Faltering demand presents a challenge for the Organization of Petroleum Exporting Countries and its allies. The 23-nation group had planned to start slowly reviving 2.2 million barrels a day of idle output with an initial tranche next month, but has chosen to pause the first hike until December.

Rival producers, who have benefited from Opec+’s efforts to support prices, may pose an even bigger threat to the cartel. Non-Opec+ output will increase by 1.5 million barrels a day this year and next, exceeding growth in world oil demand by more than 50%, according to the IEA. The gains will be driven by the US, Brazil, Canada and Guyana.

Even if Opec+ entirely cancels the plan to revive 2.2 million barrels a day next year, it won’t prevent the emergence of a glut, according to the IEA.

“With non-Opec+ supply rising faster than overall demand — barring a prolonged stand-off in Libya — Opec+ may be staring at a substantial surplus, even if its extra curbs were to remain in place,” the IEA said.

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