Oil demand set a record of 103 million barrels a day in June, driven by summer air travel, a surge in use by China’s petrochemical plants, and stronger-than-expected economic activity in Europe, the International Energy Agency (IEA) reported.

Demand could surpass that record this month, the agency said, and this year could average 102.2 million barrels daily, also a record.

That new annual average would put this year’s daily average consumption 2.2 million daily barrels above last year’s figure, with 70 percent of the increase due to China, the IEA noted.

Global oil production in July fell to its lowest since October 2021. Since then, Russia has announced it will cut its output by 300,000 barrels a day beginning next month. Saudi Arabia has said it will continue its previous reduction of a million barrels a day until at least October. (See “Oil Prices Climb as Inflation Slows and Supplies Tighten,” 8 Aug 2023.)

Production from OPEC+ will reach a two-year low in the next quarter, the IEA calculates.

Demand growth will slow next year to one million extra barrels a day, the agency added, “with the post-[COVID] recovery having largely run its course and as the energy transition gathers pace.”

Sixty percent of 2024’s growth in demand will come from China, the IEA said.

TREND FORECAST: OPEC will continue to play price and supply against each other to maximize profits as the energy transition continues. The Saudis will work this strategy as long as they can, using profits to fund Vision 2030, an ambitious plan to wean the country’s economy from its dependence on oil and create jobs for a restless younger generation. The plan includes building a $500-billion futuristic city to be called Neom, as we explained our previous article noted above.

The wild card is Russia. Western sanctions have cut it off from world markets. Without that tether, Russia is interested only in maximizing its profits, regardless of its pricing policy on any other factors.

Less oil coming out of Russia will drive prices higher as demand rises during the winter. At that point, Saudi Arabia and its OPEC partners will face the decision of whether to ride the higher price for short-term gains or boost their own production to slow the energy transition.