IEA trims oil demand estimates as lockdowns deepen China slide

The International Energy Agency (IEA) trimmed estimates for global oil demand growth this year as renewed Covid lockdowns in China slow activity in the world’s second-biggest consumer.

World oil consumption will increase by 2 million barrels a day this year – about 110,000 a day less than previously forecast – to average 99.7 million barrels a day, the Paris-based agency said in its latest monthly report. Demand will expand again by about the same amount in 2023, it said.

China – the engine of world oil demand growth for much of the past two decades – will see a contraction this year of 420,000 barrels a day in product demand, a much steeper drop than envisaged last month.

“For now, a deteriorating economic environment and recurring Covid lockdowns in China continue to weigh on market sentiment,” said the agency, which advises most major economies.

Crude futures have tumbled almost 25 per cent over the past three months, trading near $93 a barrel in London on Wednesday, on signs of a global economic slowdown. Renewed Chinese restrictions to stem the latest virus outbreaks have included a lockdown of megacity Chengdu, with 21 million inhabitants.

With the economic backdrop darkening, the OPEC+ alliance of producers led by Saudi Arabia has pivoted from increasing supply back to tightening it, and signaled that it could make further cutbacks in the months ahead.

The Chinese downturn is being partially offset by “robust” use of oil in many countries for power generation, as they switch away from costly natural gas, the IEA said. About 700,000 barrels a day will be absorbed by this in the fourth quarter and in early 2023, double the levels seen a year ago.

Still, the agency noted a split between markets for crude oil – which face a projected surplus of 1 million barrels a day in the second half of the year – and the refined products used by consumers.

Overall oil supplies have been maintained as IEA members like the US release emergency stockpiles, and as Russian exports prove surprisingly resilient to an international backlash following the crisis of Ukraine, the agency said.

Yet supplies of diesel, used for trucks, and jet fuel remain “exceptionally tight,” it said. Diesel markets have been constricted as China and India limit exports. Oil markets generally could still be tightened in the months ahead as European Union sanctions on Russian sales take effect in early December, the agency cautioned.