John Kemp, senior market analyst of commodities at Reuters, cites a new report via B.P.'s finance chief that indicates global oil consumption will be less than 1 million barrels per day this year, an ominous sign that the global economy is quickly deteriorating.
Kemp said growth is expected to be less than one million barrels per day (bpd) would represent an increase of less than 1% in global oil consumption and the lowest level of growth since 2014 and before that 2012.
Back then, declining demand was due to elevated oil prices averaging above $100 per barrel in real terms. Now prices trend in the $50-$60 range for WTI, confirming that even with low oil prices, demand is nowhere to be seen.
B.P.'s global oil consumption is the most bearish among other predictions from the International Energy Agency (+1.1 million bpd), OPEC (+1.1 million) and the U.S. Energy Information Administration (+1.0 million).
Waning demand for oil across the world is the result of a global manufacturing recession festering underneath the surface. The global synchronized decline is structural and started in 4Q17, several months later, the trade war between the U.S. and China erupted in 1Q18.
Since global GDP drives oil consumption. Kemp shows that the World Bank ("Global economic prospects," June 2019) data is indicating world growth will be in a slump this year. Estimates show global GDP has been revised lower from 3.0% in 2018 to just 2.6% in 2019.
Global GDP growth is at the same level as 2014 and before that 2012. So it makes sense why oil consumption has dropped to a five year low, it's because the global economy has lost tremendous amounts of momentum, now reversing into a vicious downturn.
Kemp notes that the World Bank data is three months old, and since, numerous global indicators have shown a rapid deceleration in global data into late summer, especially coming out of Europe, the U.S., and Asia.
The World Bank is likely to revise global GDP growth sometime later this year, could come in at 2.5%, which would be the worst since the financial crisis of 2008.
B.P.'s latest forecast has global oil consumption slightly under 1% and 1 million bpd, in line with expectations that would mean the global economy has already entered a trade recession.
With all the signs pointing to a global economy that continues to decelerate, oil consumption growth will likely remain below trend for the coming quarters, keeping spot prices subdued.
So what does that mean for consumers? Well, enjoy low gasoline prices at the pump through 2019 - unless someone decides to blow up another tanker in the Strait of Hormuz.