The oil market has experienced a “cooling down” this summer as global supply disruptions have eased at a time when demand has also slowed a bit, according to a new report from the International Energy Agency (IEA). But that pause may only be temporary, with the road getting much rockier towards the end of this year.
It may not feel like things have “cooled down” this summer, as the IEA put it. Record high temperatures have spread across the globe, California is in the midst of its worst ever wildfire, wheat and corn harvests are withering in various parts of the globe, among other climate-related calamities. The energy sector has not been spared. Nuclear power plants in Europe have had to shut down because river levels are too low to cool the plants, and heat waves on several continents have crashed the electricity grids. 2018 is expected to be the fourth hottest year on record, only exceeded by the three previous years.
But, there has been a “cooling” of late in the oil market, the International Energy Agency said in a new report. The supply disruptions that rattled the market earlier this summer have somewhat receded. Libya has partially restored production, and Saudi Arabia and Russia have added new supply. Acute concerns about supply shortages no longer dominate the headlines.
The demand side of the equation has also slowed, a development that is just as significant. In the first quarter of 2018, demand grew at a staggering 1.8 million-barrel-per-day rate. But that has slowed dramatically to just 1 mb/d in the second and third quarters. The IEA said part of the reason for the drop off is that the figure for the second and third quarters is compared to year-ago figures that were rather high, which makes the increase for this year look less impressive. In OECD Europe, demand in the second quarter actually declined year-on-year.