Global crude oil demand is expected to decline in early 2020 before recovering throughout the year, according to a report by the London-based independent economic research company Capital Economics released on Wednesday.
"Subdued global economic activity will weigh on oil demand next year," Caroline Bain, chief commodities economist at London-based Capital Economics, said in the report titled "Global crude demand to trough in early 2020."
"That said, we expect GDP growth to gradually pick up over the course of the year , and new International Maritime Organization rules (IMO 2020) to boost crude demand from the shipping sector," she added.
The research company said it forecasts global oil consumption to rise by 1.1 million barrels per day (bpd) in 2020, up from an estimated 800,000 bpd in 2019, which would give some support to crude prices.
So far this year, global oil demand has remained week, the report said.
"The slowdown in global trade has been a key factor weighing on oil demand this year," Bain said, but she added "Unlike some commentators, we do not ascribe the slowdown in trade directly to the U.S.-China trade dispute."
Global oil demand growth was just over 0.5% in both the first and second quarters of 2019, compared to the same periods of last year, according to the International Energy Agency, the report said, adding these also marked the lowest growth rates since the fourth quarter of 2011.
"The regional breakdown shows that most of the weakness was in the OECD, notably Europe, which is consistent with slower GDP growth there. Our forecast that EU economic growth will stabilize at a low level in 2020 does not bode well for crude imports," Bain explained.
- US oil demand slowed, China surged
The world's largest oil consumer, the U.S., saw a slowdown in the growth of its oil demand considerably this year, but it avoided a contraction, according to the report.
"It appears that the deceleration in U.S. job creation (most Americans drive to work) is weighing on growth in gasoline and crude oil consumption," Bain said.
The U.S.' oil demand is expected to remain soft, but it is estimated to increase gradually throughout 2020, as the Federal Reserve's monetary easing will begin to have an impact on American economy, according to the report.
"We do envisage that an extended period of loose monetary policy will set the stage for a cyclical economic recovery in the second half of 2020, which should give a lift to crude demand," Bain said.
China, on the other hand, saw its oil demand surge in 2019, as the latest trade data shows its oil imports growing at around 10% in January-September period this year, compared to the same period a year ago.
"However, we suspect that the strength in imports has more to do with new refinery capacity coming on stream than robust domestic demand," Bain said in the report.
"Indeed, refined product exports also picked up in September, suggesting that the local market could not absorb all the refinery output," she added.
Capital Economics said the Chinese economy is in a structural slowdown, and this points to lower growth in oil consumption in 2020-21, which the research firm estimates at an annual average of around 2.2%.
By Ovunc Kutlu