Lower oil prices help grease economic activity, says IEA

The threat of an all-out trade war has dampened the outlook for the global economy, but the recent drop in oil prices should support demand, the International Energy Agency said Thursday.

There has been intense concern about a slowdown in China, which has been the motor for growth in the global economy in recent times, but the IEA said in a report that demand for oil there remains robust.

The IEA last month lowered its forecast for growth of global oil demand for 2018 and 2019, citing high prices, trade tensions and a less favorable economic outlook.

But oil prices, which struck $86 per barrel in October, then tumbled to $58 last month, prompting the OPEC oil cartel and Russia to agree on new production cuts to stabilize prices.

The IEA declined to speculate on the longer-term impact of the deal, but noted that price expectations by the market have shifted lower. Lower oil prices tend to support demand for oil and economic activity.

The drop in oil prices “should help support demand in 2019,” said the IEA. “The price impact is offset, however, by slightly lower economic growth assumptions and downward revisions to our projections for certain countries impacted by weak currencies, such as Turkey, or countries facing collapse, such as Venezuela,” said the Paris-based agency, which advises major oil-consuming nations.

The IEA’s analysis included the latest economic projections released last month by the OECD, which said the global economy has peaked and faces a slowdown driven by international trade tensions and conditions.

The OECD trimmed its growth forecast for 2019 to 3.5 percent from the previous 3.7 percent.

The IEA thus left unchanged its projection for oil demand growth in 2019 at 1.4 million barrels per day (mbd). It noted however that growth in global demand has accelerated, from modest growth of 0.5 mbd year-on-year in the second quarter of this year, to 1.3 mbd in the third quarter.

The IEA sees it rising to 1.6 mbd in the final three months of this year.

While various measures of China’s economy have pointed to slowing growth, the IEA said the country’s thirst for oil remains unsated. “China’s apparent oil demand increased strongly” in the third quarter, when it grew by 840,000 barrels per day.

“This trend has continued in October when growth is estimated to have been” 700,000 barrels per day, it added.

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