Global Oil Demand Growth Slows as China and EVs Reshape Market

Global oil demand growth is experiencing a significant slowdown, primarily attributed to China’s economic deceleration and the increasing prevalence of electric vehicles, according to Fatih Birol, the Executive Director of the International Energy Agency (IEA). In a recent interview, Birol emphasized that over the past decade, more than 60% of global oil demand growth originated from China, with the rest of the world contributing 40%. He noted that the current decline in Chinese oil demand is a direct reflection of the broader slowdown in the Chinese economy, a sentiment echoed by various financial institutions and the International Monetary Fund (IMF).

Birol pointed out that the IEA had previously predicted this trend, despite facing skepticism. “In 2024, we forecasted a notable decrease in global oil demand growth, estimating an increase of less than 1 million barrels per day,” he stated. Other organizations had projected a growth of over 2 million barrels per day. The IEA’s forecasts proved accurate, yet Birol lamented that the success of these predictions went largely unreported.

Impact of Supply Dynamics on Oil Prices

The IEA chief highlighted the surge in oil production from the Americas as a critical factor shaping current market dynamics. He referred to the United States, Canada, Brazil, Argentina, and Guyana as the “American quintet.” “The US is leading this production growth significantly,” Birol remarked, adding that this influx of supply has contributed to stabilizing prices despite weaker demand.

He underscored that continued investment in oil production is crucial, stating, “Oil fields, like human beings, are very productive but come to a peak, and after that, they start to decline. To counterbalance the decline in existing fields, investment is essential.” Currently, 90% of investment in oil is directed toward maintaining current production levels, with only 10% aimed at accommodating demand growth.

The disparity between robust supply and diminishing demand is a key factor keeping oil prices relatively stable, according to Birol. “Despite geopolitical tensions, including ongoing events in the Middle East, prices remain around $60 per barrel. This indicates comfortable pricing levels in the market,” he explained.

Concerns Over Europe’s Energy Security

Birol also addressed the implications of energy security for Europe, warning that historical policy decisions have left the continent vulnerable. “I live in Paris and engage with various international leaders, including those from the US, Europe, Japan, and India. We are in a challenging situation regarding energy,” he stated.

He pointed out that elevated energy prices pose significant challenges to the competitiveness of European economies. Furthermore, he noted that energy security has become a critical risk, attributing this to what he termed “three historical strategic mistakes” made in the last thirty years. These missteps, he argued, have had lasting repercussions on Europe’s economy, energy strategy, foreign policy, and defense capabilities.

Birol’s insights underscore the evolving landscape of global oil demand and the complex interplay of economic factors driving market changes. As nations adapt to these challenges, the focus on sustainable energy solutions, including electric vehicles, is likely to intensify, shaping the future of energy consumption worldwide.