The FINANCIAL — Demand for oil is increasing at its fastest pace in five years, boosted by an oil-price drop below $50 a barrel, a top energy watchdog said on August 12, as it sharply upgraded its consumption-growth forecast for the commodity, according to Nasdaq.
But in a blow to the Organization of the Petroleum Exporting Countries’ strategy to defend its market share, the International Energy Agency said lower oil prices would only start to dent rival production next year.
In its closely watched monthly report, the IEA said global oil demand would grow by 1.6 million barrels a day this year, an upward revision of 200,000 barrels a day from its previous forecast, and would keep rising by 1.4 million barrels a day next year. The organization—which advises industrialized nations on energy—said consumers were responding to lower oil prices while macroeconomic prospects were better than expected.
“Oil’s plunge below $50 barrels a day from triple digits a year ago has seen demand react more swiftly than supply,” the IEA said. “Against this backdrop, many participants in the oil industry have adopted a new mantra â ” ‘lower for longer’.”
The news comes after OPEC also upgraded its oil consumption views for 2015 in a report Tuesday. Global oil demand is expected to grow by 1.38 million barrels a day this year, some 90,000 barrels a day more than it previously expected, the oil producers’ cartel said.
OPEC has vowed to keep its production elevated despite lower oil prices to stop rival producers—notably U.S. light tight oil—from growing.
Supply outside OPEC is expected to decelerate but it has yet to fall. Non-OPEC production growth is expected to slow from a 2014 record of 2.4 million barrels a day to 1.1 million barrels a day this year, the IEA said. But it will only start declining—by 200,000 barrels a day—in 2016. Most of the drop will come from Russia as U.S. production will continue rising—by about 190,000 barrels a day—next year, the agency also said.
“While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016—suggesting global inventories will pile up further,” the agency added.