EIA cuts oil consumption again

Via EIA this time:

In the September 2019 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) revised its forecast for 2019 global liquid fuels consumption down to 100.8 million barrels per day (b/d), 0.1 million b/d lower than the August STEO and 0.7 million b/d lower than the January STEO. EIA attributes the lower forecast 2019 global oil consumption to a downward revision of 0.18 million b/d in the United States and Europe, in addition to downward revisions to forecast consumption in the Middle East and in India (Figure 1). If the September forecast is realized, 2019 would be the first year that global liquid fuels consumption grows less than 1.0 million b/d since 2011.

Figure 1. Changes in the STEO 2019 total world liquid fuels consumption forecast

The latest STEO forecast for total global consumption growth reflects lower expected economic growth rates for 2019 compared with 2018. Based on forecasts from Oxford Economics, EIA has lowered the STEO forecast global oil-weighted gross domestic product (GDP) growth projection every month in 2019. In the January STEO, EIA forecast a 2019 year-over-year GDP growth rate of 2.9%, but in the September STEO, EIA forecast a 2.1% growth rate.

The reduced GDP forecasts through the year coincided with declining economic indicators, such as the manufacturing Purchasing Managers’ Index (PMI), a survey of purchasing managers’ current and expected business conditions. A PMI higher than 50 indicates an expansion of activity and lower than 50 indicates a contraction. PMI results for several countries in August signaled a contraction in manufacturing activity (Figure 2). PMI reports were mixed for the United States in August. The IHS Markit PMI showed slight expansion, although it was at the lowest level since September 2009, while the U.S. Institute for Supply Management’s PMI showed contraction for the first time since 2016. The manufacturing PMI for Europe’s largest economy, Germany, has been lower than 50 since January, and the PMI for the broader Eurozone has been lower than 50 since February. Among 37 countries that publish manufacturing PMI surveys, the median PMI declined to 49.1 in August.

Figure 2. Manufacturing Purchasing Managers' Index (PMI) readings for 37 countries

Economic activity directly affects liquid fuels consumption. EIA revised down its 2019 forecast for U.S. total liquid fuels consumption by 0.2 million b/d from the January STEO to 20.6 million b/d in the September STEO. Consumption of motor gasoline and distillate together comprise 0.1 million b/d of the decline; forecast gasoline consumption decreased by 30,000 b/d, and forecast distillate consumption decreased by 70,000 b/d. In the September STEO, EIA forecasts that vehicle miles traveled in the United States will increase by 1% from 2018 to 8.9 million miles per day in 2019, lower than the January STEO forecast of 9.0 million miles per day. The lower forecast vehicle miles traveled contributes to the decline in forecast gasoline consumption. Distillate consumption is closely linked with economic activity, and slower growth rates in several sectors of the economy are contributing to lower distillate consumption than previously forecast. Because of the downward revisions in the consumption forecast for both gasoline and distillate, in the September STEO, EIA forecasts consumption of both fuels to be lower than 2018 levels.

The slower economic growth that has affected U.S. liquid fuels consumption is also contributing to lower-than-expected consumption in other countries. EIA estimates that European liquid fuels consumption totaled 14.7 million b/d for the first half of 2019, 0.2 million b/d lower than the forecast from the January STEO, partially as a result of a warmer-than-normal winter in the first quarter. In the Middle East, sanctions on the Iranian oil sector have contributed to significantly lower economic activity and domestic oil consumption. In addition, in Saudi Arabia, the lowest level of crude oil consumption for power generation since at least 2009 is limiting oil consumption growth in the Middle East. In Asia, EIA revised Indian liquid fuels consumption growth for 2019 down by 0.1 million b/d from the January STEO to the September STEO because slower economic growth contributed to lower first-half 2019 liquid fuels consumption than forecast.

In its September STEO, EIA forecasts global liquid fuels supply and demand will be relatively balanced in the third quarter of 2019, followed by a 0.4 million b/d stock build in the fourth quarter (Figure 3). EIA forecasts that 2019 global liquid fuels stocks will increase by an average of 0.2 million b/d, partially as a result of the lower liquid fuels consumption growth.

Figure 3. World liquid fuels production and consumption balance

I continue to worry about a low season price rout through new year.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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