China’s oil-demand growth slowdown weighs on global outlook, IEA says

The Paris-based organization estimates that global demand will grow by 970,000 barrels a day this year and by 953,000 barrels a day the next—marginally lower than previous estimates of 974,000 and 979,000 barrels a day. Total demand is expected to average at 103.1 million and 104 million barrels a day this year and next, respectively.

In the second quarter of this year, global demand increased by 870,000 barrels a day with a strong summer driving season in the U.S. pushing gasoline demand higher, while industrial fuels and petrochemical feedstock in Europe and Asia staged a moderate recovery, the agency said.

While demand in advanced economies has shown signs of strength in recent months, in countries outside the Organization for Economic Cooperation and Development, it grew at the slowest pace since 2020 in the second quarter, with China’s consumption contracting by 110,000 barrels a day.

“A meaningful shift in drivers is becoming apparent," the IEA said. “Weak growth in China, following the post-Covid surge of 2023, now significantly drags on global gains."

China’s downturn is most apparent in naphtha and gasoil-products closely associated with factory and construction activity—with demand for the latter under pressure due to an expanding share of natural gas and battery-powered trucks and vans.

“This suggests that lackluster construction and manufacturing activity has started to weigh on oil use and hints at a pause in the relentless expansion of the country’s petrochemical sector," the agency said. “As a result, China’s share of non-OECD demand growth is set to fall to 31% in 2024, compared with 71% in 2023."

Meanwhile, recent data from China points to further weakness in July, with preliminary trade figures showing crude oil imports fell to their lowest levels since September 2022, the IEA said.

The IEA’s global projections are still substantially lower than OPEC’s, but remarks on China echo the cartel’s. In its latest report on Monday, the group of oil producing countries slightly trimmed its forecast for oil-demand growth to 2.11 million barrels a day this year and 1.78 million barrels a day the next, citing softening expectations for the world’s second largest economy.

Tuesday’s report came after crude prices recorded their first weekly gain since early July despite a broader selloff in global markets last week, supported by a higher geopolitical risk premium in anticipation of an Iranian attack against Israel.

Brent crude currently trades around $81 a barrel, while the U.S. oil gauge, West Texas Intermediate, is around $79 a barrel.

Prices are also supported by fears of disruption to energy supplies in Europe due to intense fighting between Russia and Ukraine, the shutdown of Libya’s largest oil field, and more encouraging economic data easing fears of a recession in the U.S. Still, persistent concerns over the demand outlook in China and uncertainties around the path of interest rates in the U.S. continue to weigh on sentiment.

In July, global oil supply rose by 230,000 barrels a day, the IEA said, as significantly higher OPEC+ flows offset losses from producers outside the group. But for now, supply is struggling to keep pace with peak summer demand, tipping the market into a deficit.

Total supply is now seen at an average of 102.9 million barrels a day this year and 104.9 million barrels a day the next, from previous estimates of 103 million and 104.8 million barrels a day, respectively.

Non-OPEC+ countries are still set to lead global supply, with production expected to grow by 1.5 million barrels a day in 2024 and 2025, driven by the U.S., Guyana, Canada and Brazil. OPEC+ output is instead on course to decline by 760,000 barrels a day and to rise by 400,000 barrels a day next year, if voluntary cuts stay in place.

The IEA had previously said it would adjust its supply forecast for OPEC+ when the alliance confirms it will unwind some of its voluntary output curbs, as laid out in a roadmap presented to markets in June. The cartel and its allies agreed to extend voluntary curbs of 2.2 million barrels a day to the end of September and said they aim to gradually unwind them from October 2024 to September 2025, contingent on market conditions.

According to the IEA, the global market could be oversupplied next year if the bloc were to proceed with its planned unwinding.

Crude output from OPEC+’s 22 member countries rose by 250,000 barrels a day in July to 41.70 million barrels a day, as Saudi flows bounced back and Iraq pumped more oil, the IEA said. Russia’s crude supply stood at 9.23 million barrels a day, still 250,000 barrels a day above targets set with OPEC+.

Russia’s crude exports fell by 280,000 barrels a day to 7.4 million barrels a day last month, while commercial revenue rose by $880 million compared with the previous month to $17.12 billion, partly boosted by stronger prices.

Write to Giulia Petroni at giulia.petroni@wsj.com