June 19, 2019 / 2:52 PM / 3 months ago

Column: Global economic slowdown hits oil consumption

LONDON (Reuters) - Global oil consumption rose last year at the slowest rate since 2014, as higher prices and broad deceleration in manufacturing activity and freight movements took their toll on fuel use and petrochemicals.

The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France March 28, 2019. REUTERS/Christian Hartmann/Files

Consumption is likely to rise even more slowly in 2019, given the further weakening of most manufacturing and freight indicators since the start of the year.

World consumption increased by just 1.44 million barrels per day (1.46%) in 2018, according to the latest edition of the BP Statistical Review of World Energy, published on June 11.

Consumption growth slowed from 1.67 million bpd (1.72%) in 2017, 1.69 million bpd (1.78%) in 2016, and 1.85 million bpd (1.99%) in 2015.

If the global economy experiences a mid-cycle slowdown this year similar to those in 2014/15 or 2011/12, consumption growth could decelerate to as little as 1.0 or 1.2% in 2019.

Given current consumption of almost exactly 100 million barrels per day, that would imply an increase of just 1.0 to 1.2 million bpd in 2019.

A full-blown global recession would obviously reduce growth even further, potentially well below 1.0 million bpd, and leave the market severely oversupplied.

FORECASTS

For the moment, all three major statistical agencies predict growth of around 1.2 million bpd in 2019, implying a mid-cycle slowdown but no recession.

The U.S. Energy Information Administration (EIA) puts consumption growth at 1.22 million bpd, the International Energy Agency at 1.20 million and the Organization of the Petroleum Exporting Countries at 1.14 million.

But such sluggish growth in consumption poses a problem for OPEC because U.S. shale producers will capture all the increase in oil use this year, just as they did in 2018 and 2017.

The EIA is forecasting U.S. petroleum liquids output will increase by almost 2 million bpd in 2019, dwarfing the consumption boost.

The oil market remains near to balance only because U.S. sanctions on Iran and Venezuela, as well as production problems in several other countries, are disrupting OPEC’s output badly.

DISTILLATES

Consumption of middle distillates will be the most affected by any cyclical slowdown because of their intensive use in manufacturing, freight transportation, mining, and oil and gas production.

Tepid demand from manufacturers and transport companies explains why distillate refining margins remain weak despite the scheduled introduction by the International Maritime Organization of new marine fuel rules at the end of the year.

Distillate consumption increased by around 740,000 bpd (2.1%) in 2018, slowing from 800,000 bpd (2.3%) in 2017, but still relatively fast for the current economic expansion.

If the global economy experiences a mid-cycle slowdown similar to 2015/16 or 2011/12, however, consumption growth could slow to just 180,000-360,000 bpd (0.5-1.0%) in 2019.

Editing by Dale Hudson

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