Oil demand set to slow in 2017 due to weak economic outlook

The IEA forecast for 2017 was cut by 100,000 barrels from last month following a revision to the global economic outlook by the International Monetary Fund after Britain voted to leave the EU

The drop in price of crude oil reflects a loss of confidence in the market after the latest meeting of Opec, where ministers from oil-producing states failed to cut back supply (Corbis)

Oil demand growth will weaken more than expected in 2017 as a climate of economic insecurity continues, according to the world’s leading energy body.

Global oil demand is expected to grow by 1.2 million barrels a day next year, down from 1.4 million barrels a day in 2016, the International Energy Agency (IEA) said on Thursday.

This also represents a 100,000 barrels a day decrease from last month forecast.

The IEA trimmed its forecast following the International Monetary Fund’s decision in July to cut its world economic growth following UK’s vote to leave the EU.

“Global oil demand growth is expected to slow from 1.4 mb/d in 2016 to 1.2 mb/d in 2017, as underlying support from low oil prices wanes. The 2017 forecast – though still above-trend – is 0.1 mb/d below our previous expectations due to a dimmer macroeconomic outlook. The 2016 outlook is unchanged from last month’s report,” the IEA report said.

If demand is weakening, supply has increased substantially over the course of last month.

An increase in production from Opec and non-Opec countries drove global oil supply up by 800,000 in July.

Oversupply helped send oil prices from $115 a barrel in June 2014 to as low as $27 in January this year. Crude later recovered to around $50 but fell again towards $40 in July.

“The massive overhang of stocks is also keeping a lid on prices, with both newly produced and stored crude competing for market share in an increasingly volatile refinery margin environment,” the IEA said.

Meanwhile, output by Saudia Arabia, the world’s largest exporter of oil, reached a high last month, intensifying the oil industry’s problems.

Saudi Arabia told Opec that it pumped a record 10.67 million barrels of oil a day in July up 123,000 barrels per day.

The output beat the previous all-time production high of 10.56 million barrels a day in June 2015, according to OPEC submissions

Oil prices reacted negatively to the IEA's downgrade on Thursday, with both benchmarks dropping sharply on the news.

(Investing/Business Insider (Investing/Business Insider)

Brent crude, the global oil benchmark, fell 1.2 per cent to $43.55 a barrel on London’s ICE Futures exchange.

On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.3 per cent at $41.14 a barrel.

Additional reporting by Reuters