According to the International Energy Agency (IEA), strong demand for summer air travel, increased oil use in power generation and surging Chinese petrochemical activity has put pressure on oil supplies this summer – with China accounting for more than 70 per cent of growth.
But with the post-pandemic rebound running out of steam, lacklustre economic conditions, tighter efficiency standards and new electric vehicles weighing on use, growth is forecast to slow in 2024.
"The global economic outlook remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade," the IEA said.
Nevertheless, the surge in demand is expected to continue in the coming months. Despite recent increases in output from oil producers, the current level of demand is high enough that the market has remained tight, albeit not reaching prices seen last year in the wake of the Ukraine war.
Chinese demand was also stronger than expected, reaching fresh highs despite persistent concerns over the health of the economy.
For the year, global oil demand looks on track to expand by 2.2 million barrels a day to reach its highest-ever annual level. But with the post-pandemic recovery having largely run its course and the transition to green energy gathering pace, growth is expected to slow to 1 million barrels a day, the IEA said.
Currently, refiners are struggling to keep up with demand growth, as the shift to new feedstocks, outages and high temperatures have forced many operators to run at reduced rates.
The market has seen oil companies make changes to their operations, with Shell recently dropping its plan to cut production by 1-2 per cent per year until 2030.
Rishi Sunak also unveiled a programme to issue hundreds of new oil and gas licences in the North Sea as part of efforts to make Britain more energy-independent.
The independent Climate Change Committee, which advises the government on climate change, has predicted that around a quarter of the UK's energy demand will continue to be met by oil and gas by 2050, when the UK plans to reach net zero carbon emissions.
But a 2021 report found that the world's largest fossil fuel companies will need to cut their extraction of oil and natural gas by 50 per cent by the 2030s if the world is going to stick to the climate goals laid out in the Paris Agreement.
