Oil bulls who’ve cheered a rebound of 40 percent from a six-year low should take heed: Unless demand accelerates, the rally is in danger.
The omens aren’t good. The U.S. government expects global consumption to grow next year at less than half the rate of 2010, when the world was emerging from a previous recession. The growth is insufficient to close the gap with rising supply, according to Royal Dutch Shell Plc, Europe’s biggest energy producer.
The last time oil crashed, during the 2008 financial crisis, China’s appetite for commodities seemed insatiable, and powered prices higher. This time, Chinese fuel use is growing at half the rate of the past decade, and sliding U.S. shale output could reverse as prices rise, smothering the gains.
West Texas Intermediate crude, the U.S. benchmark, has climbed more than $17 a barrel from a six-year low of $43.46 on March 17. WTI for June delivery added 33 cents to $61.08 a barrel at 11:32 a.m. on the New York Mercantile Exchange on Tuesday.
Global oil demand will grow just 1.3 million barrels a day to 94.58 million next year, the Energy Information Administration said Tuesday. It jumped 2.89 million in 2010 after the previous price crash.
In the U.S., consumption will increase 0.4 percent next year to 19.44 million barrels a day, leaving it at a lower level than in 2008.
“There are pockets of strength, but the days where we saw greater than 1.5 percent oil demand for a year are probably largely behind us,” said Michael D. Cohen, an analyst at Barclays Plc in New York.
Consumption growth is not enough to bridge the divide with supply, Simon Henry, Shell’s chief financial officer, said April 30 on a conference call. “The supply overhang is potentially quite a bit higher for some time to come.”
China’s fuel demand will grow by 3.1 percent next year to 11.34 million barrels a day, according to the EIA. That compares with an 11 percent jump in 2010 that helped boost crude prices by 15 percent. Annual growth has averaged 5.2 percent in the past 10 years.