Amidst OPEC’s production cuts, global oil demand has surged to record levels, propelled by robust consumption, particularly in China. The International Energy Agency (IEA) warns of potential price increases due to this demand surge.
In June, worldwide fuel consumption averaged an unprecedented 103 MMbpd, and this trajectory is poised to ascend further in August, as Saudi Arabia and allies tighten supply. The IEA attributes this surge to increased summer air travel, heightened oil use in power generation, and a booming Chinese petrochemical sector.
Oil prices danced to a six-month high above $88 per barrel in London this week, stimulated by post-pandemic fuel resurgence and supply constraints by the Saudi-led OPEC+ alliance. Although Brent futures later receded slightly to dip below $87, the impact remains palpable.
Contrary to speculation amid the Covid-19 crisis, the data underscores that oil consumption has not peaked. While China contributes 70% to this year’s demand growth, developed nations unexpectedly fortify the surge.
Next year, the energy landscape will shift, with global demand growth predicted to halve to 1 MMbpd due to heightened vehicle efficiency and electric car adoption. However, in the interim, oil markets are tightening. Developed nations’ oil inventories are 115 MMbbl below their five-year average, signaling a substantial depletion by 1.7 MMbpd in H2 of this year.
Amid this crescendo, major consuming nations critique OPEC+’s supply constrictions, fearing inflation and impeded global recovery. Saudi Arabia acknowledges the potential for intensified cutbacks if warranted.
OPEC’s output, with Saudi Arabia leading a unilateral cut of 1 MMbpd, has descended to a nearly two-year nadir. Russia, a coalition member, also curbs exports.
Although this quarter eases the urgency for OPEC’s crude, the requirement for an average of 29.8 MMbpd from its 13 members in Q4 remains substantial, exceeding July’s output of 27.9 MMbpd.
The IEA concludes with a cautionary note: if the current course persists, dwindling oil inventories could harmonize with higher prices, a dissonant tune amidst global economic recovery.
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