Oil prices might have taken a tumble over the summer but demand is set to make a modest recovery in 2015 as the global economy improves, says the International Energy Agency (IEA).
Oil prices have seen dramatic declines in the last few months, with the price for Brent crude hitting a two-year low of $88.55 a barrel this week, on the back of an abundant supply and slowing orders in the U.S., China and Europe. However, the IEA believes that demand growth "may have touched bottom" and should steadily improve.
"Projections of oil demand growth for 2014‐15 have been reduced, but growth is still expected to gain momentum. Recent data suggest that may already have started to happen," the IEA said in its monthly report on Tuesday. It added that record‐high refinery throughputs in August and improved margins worldwide suggest demand is perhaps not currently "as dismal as it might appear."
The agency revised its forecasts for global oil demand for 2014 to 92.4 million barrels a day -- down 200,000 b/d from its September report -- on "reduced expectations of economic growth and the weak recent trend."
As such, demand growth was now projected at 700,000 b/d in 2014 although the agency predicted demand growth to rise "tentatively" to 1.1 million b/d in 2015, "as the macroeconomic backdrop improves."Demand growth is forecast to pick up momentum in the fourth quarter of 2014, the IEA remarked, "albeit modestly in line with the global economy."
Concerns over a slowdown in economic growth have been a major factor behind a sharp fall in oil prices over the last few months. Brent crude, the global oil benchmark, has fallen more than 20 percent since June when turmoil in Iraq had lifted prices to $116 a barrel.
The drop in prices has led to expectations that the Organization of the Petroleum Exporting Countries could cut output in an attempt to shore up prices, but Saudi Arabia and Kuwait have played down such a move.
According to the IEA, weaker-than-expected demand for oil in the second quarter of 2014 has "come as a surprise" and it added that "further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift."
Rather than be deterred by falling prices, OPEC crude oil output surged to a 13-month high in September, led by Libya's recovery and higher Iraqi flows, the IEA reported.