Crude Economics
Slowing Oil Demand Might Make a Freeze Deal Moot

The International Energy Agency has some bad news for oil producers. In its monthly oil market report, the IEA described sluggish global demand for crude, a worrying sign for anyone hoping for an end to the market glut. The WSJ reports:

The IEA—which advises oil-consuming countries on their energy policies —blamed “wobbling” Asian oil demand and falling oil consumption in Europe for much of the change. The Paris-based agency downgraded its global oil-demand predictions by about 100,000 barrels a day for this year—although it is growing by 1.3 million barrels a day. It also reduced the forecasts by about 200,000 barrels a day in 2017, with consumption increasing more slowly at 1.2 million barrels a day. […]

The IEA’s closely watched monthly oil-market report marked an abrupt shift for an agency that a month ago said the world’s oil glut had begun disappearing. The Organization of the Petroleum Exporting Countries also surprised the market this week with a report that oil production outside the cartel was proving more resilient than expected.

The world’s supply of oil already outstrips its demand for the hydrocarbon, and prices reflect that fact, today less than half of what they were in the summer of 2014. But slower-than-expected growth in demand is a problem that petrostates can do little to solve. OPEC plans to meet with a number of delegates from other oil-producing countries in Algeria at the end of the month to try for a second time to agree on a deal that would “freeze” output at current levels in an attempt to induce a price rebound and relieve some of the fiscal pressure that bargain oil is putting on petrostate regimes.

But even if these negotiations are successful—far from a certain thing, given how poorly talks went when they were last attempted in Doha this spring—they won’t do anything to reduce supplies. A freeze can only eat away at the glut if demand picks up, which is why this newest IEA data will keep many an oil minister up late tonight.

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