US demand for oil grew by more than China’s last year for the first time since 1999, according to the International Energy Agency, giving the strongest indication of how abundant oil and gas supplies are driving an economic resurgence in the US.
The IEA in its latest Oil Monthly report – said US oil demand rose by 390,000 barrels a day last year, or 2 per cent, reversing years of steady decline. Chinese demand rose by 295,000 b/d, the weakest in at least six years. Oil demand figures are closely followed as indicators of economic growth, because use of fuels such as petrol and diesel indicate the strength of industrial and consumer activity.
As China’s economy has boomed over the past decade, its oil demand has surged, while US consumption has been falling steadily since 2005. But, with new drilling techniques helping to unlock US shale oil and gas reserves, the country’s consumption of oil fuels is rising sharply again. "It is clear that the US economy is rebounding very strongly thanks to its energy supplies,” said Antoine Halff, head of oil market research at the IEA. "Sometimes, oil is a lagging indicator, but sometimes it is the opposite and shows that an economy is growing faster than thought,” he added.
The IEA also notes that US demand growth has been driven by fuels such as propane, which is used in petrochemical plants – demonstrating a pick-up in industrial activity in the US.European oil demand is also showing signs of growth for the first time since the financial crisis and the IEA said that industrialised economies as a whole were likely to see oil demand rise for the first time since 2010.As a result, oil inventories in OECD countries fell by 50m barrels in November – the most since December 2011 – pushing stocks 100m barrels beneath their five-year average.
The IEA also raised its estimate for global oil demand in 2014, helping to push Brent crude oil prices up almost 1 per cent to slightly more than $108 a barrel over the last three days.
"For the last 15 years demand growth has mainly been about non-industrialised economies, but the Brics look like they are slowing down a bit, especially China, while a revival of industrial activity is driving demand in the US,”.
The rapid growth in US consumption has taken many analysts by surprise. As recently as last month, the IEA was forecasting that US demand would fall in 2014. It is now forecasting a second consecutive year of growth.US consumption also appears to be accelerating. The IEA said the latest estimate of 2013 consumption was based on "exceptionally strong US monthly data for October and robust weekly data since then”. Surging US consumption may reduce pressure on US politicians to lift an effective ban on the export of US crude oil beyond Canada.
It is worth noting that the IEA has been among the most vocal advocates of allowing foreign sales of US oil, arguing that domestic US oil prices would fall sharply, discouraging production, if US producers were denied a foreign outlet for their crude.
However, in its monthly report, the IEA acknowledged that thanks to fast-growing domestic demand and exports of refined oil products such as diesel, "challenges to [US production] growth are not imminent”.
