Global oil consumption has apparently accelerated since mid-year as lower prices filter through the supply chain, increasing demand and avoiding a big increase in inventories.
But all may not be as it seems. Much of the growth has come from China, where reported consumption is rising at rates inconsistent with the country’s slumping auto sales and slowing economy.
China’s fuel distributors and consumers have most likely taken advantage of lower prices to boost the amount of products held at fuel depots and in end-user tanks before prices rise again.
If that is the case, much of the increase can be accounted for by a one-time shift in the location of stocks rather than a sustainable increase in consumption and it will likely unwind if prices rise again next year.
Consumption in the rest of the world remains sluggish, according to the latest government figures reported to the Joint Organisations Data Initiative (JODI).
The world’s top 18 consuming countries, each using more than 1 million barrels per day, reported a rise in consumption of 1.6% in the three months from June to August compared with the same period a year earlier.
That was the fastest rate since the start of the year and a marked turnaround from the small year-on-year decline in the three months between March and May.
But China’s reported surge in consumption of almost 13% year-on-year in June-August — among the fastest rates of the last eight years — is flattering the figures and hard to square with the country’s economic backdrop.
Excluding China, consumption in the other top-17 countries was down 0.9% in the three months from June to August compared with a year ago, an improvement on a few months ago, but still weak.
The flat or falling consumption trend in the rest of the world is consistent with the decline in global freight movements and the decline in global manufacturing activity reported in business surveys.
If the United States and China manage to agree a trade truce allowing the global economy to pick up momentum next year, wider oil consumption growth should accelerate and push prices higher.
But to the extent higher prices put an end to China’s restocking, or induce destocking, the pick-up in consumption is likely to prove smaller than some oil market bulls anticipate.