The International Energy Agency, in its recently published April Oil Market Report, raised its forecast of 2015 global oil demand by 90,000 barrels per day to 93.6 million b/d. This represents a gain of 1.1 million b/d on the year and a noteworthy acceleration of the 700,000 b/d demand growth in 2014. Of course, the backdrop for increased oil demand is the improving global economy as it slowly gains momentum.
The IEA report was clear when it mentioned that given deep changes in supply and demand in recent years, the way lower prices impact the market is also different from previous price adjustments. That too is causing uncertainties, and not just about the “response of unconventional North American supply to lower prices.” In addition, the demand response has taken the market by surprise with sporadic ‘pockets of demand’ forming. These ‘pockets’ however, may simply be temporary aberrations, the IEA said, as a fair amount of oil being bought is going into storage for later use.
Unexpected demand strength in crude and product markets has boosted refining margins in some of the markets where demand has been the weakest. European product demand, long in decline, swung back to growth in some markets in early 2015, and the region’s refining sector has found renewed life amid weaker-than-expected runs elsewhere.
Ultimately, the IEA report paints a good picture for demand. The demand side of the oil equation is the key to the market stabilizing, and even so, there are those that believe the IEA is being cautious. The economy globally is better this year than last. In light of this, the demand increase going into the summer likely will be better.
As per the United States, the economy is growing steadily but slowly. Americans are buying more goods that are transported by truck and train (diesel fuel), and there has been an increase in automobile sales (directly affecting gasoline demand). Compared to last summer, American gasoline prices are half of what they were and so it is reasonable to suggest that more Americans will hit the road this summer like they haven’t in recent years.
China, the other nation significantly driving global oil demand, has an economy that continues to grow at an annual rate of 7%. Although this is not the same pace of years past, is does translate in to steady demand growth for oil going forward.