LONDON: Global oil demand growth is softening at a remarkable pace due to weaker European and Chinese economies, the West's energy watchdog said on Thursday, while adding that rising volumes of oil in storage was a good cushion against supply shocks.
"The recent slowdown in demand growth is nothing short of remarkable," The International Energy Agency (IEA) said in its monthly report, revising down its oil demand growth projections for both 2014 and 2015.
"While festering conflicts in Iraq and Libya show no sign of abating, their effect on global oil market balances and prices remains muted amid weakening oil demand growth and plentiful supply," it said.
It said demand growth in the second quarter of 2014 alone eased to a near two-and-a-half year low.
For the whole of 2014, the IEA reduced demand growth projections by 150,000 barrels per day to 900,000 bpd while for 2015 it cut estimates by 100,000 bpd to 1.2 million bpd.
"Euro zone economies, already struggling with stagnation, are getting perilously close to deflation. The risk being that falling European prices trigger a deflationary spiral that causes further reductions in economic activity, as market participants delay investment/purchasing decisions," it said.
China, the world's second largest oil consumer after the United States, is unlikely to see oil demand grow by much more than 2 percent, the IEA said.
"Falling gasoil and diesel deliveries, on the back of absolute contractions in domestic coal use, as less diesel has been required to move coal from mines to power stations... will likely remain a heavy restraint throughout 2014," the IEA said.
Oil prices fell below $100 per barrel this month for the first time in more than a year, weighed down by a combination of slowing demand growth and abundant supplies.
The IEA expects non-OPEC supply to expand by 1.6 million bpd in 2014, and by another 1.3 million bpd in 2015 on the back of the shale oil boom in North America.
That means the world will need less OPEC oil and the IEA said it lowered its estimate of demand for OPEC crude and stocks for 2015 by 300,000 bpd to 29.6 million bpd versus August production of 30.31 million bpd.
After oil prices weakened, the oil market shifted into a structure known as contango when prompt prices are weaker than prices in future months.
That market structure usually encourages oil companies and traders to store oil in the hope to resell it at a profit in the future.
The IEA said oil stockbuilding was also positive for energy security as it was serving a good cushion against any supply disruptions.
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