The International Energy Agency (IEA) has revised its forecast for oil demand slightly downwards this year. This was due to a significant slowdown in demand in the second quarter, particularly in the emerging economies, where the annual increase was the lowest since 2020, which was impacted by the COVID-19 pandemic, Commerzbank’s Commodity Analyst Carsten Fritsch notes.

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It less attractive for refineries to process crude oil

“In China, demand was 110 thousand barrels per day lower than in the previous year. The start to the third quarter was also not very promising in China, as shown by the weak crude oil imports and the latest figures from the National Bureau of Statistics on crude oil processing in Chinese refineries. This fell to 13.9 million barrels per day in July, the lowest level since October 2022.”

“In the first seven months of the year, crude oil processing remained 1.2% below the previous year's level. Last time this happened was at the end of 2022, when oil demand in China recorded a hitherto unprecedented annual decline due to the strict COVID-19 policy. The reasons for the weak processing are easy to name. The low processing margins and subdued demand for fuel make it less attractive for refineries to process crude oil.”

“The increasing proportion of electric cars in the vehicle fleet means that the increase in gasoline demand during the summer months, when demand is high, is lower than in the previous year. According to the consultancy Oilchem, the capacity utilization of independent refineries in Shandong province, which is important for refining, was just over 56% in July, 7.3 percentage points lower than in the previous year. The latest downward revision of (Chinese) oil demand by the IEA is therefore unlikely to be the last.”

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