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Research Portal

Demand for oil rises as global economic growth moves higher

May.14.2018 17:00 pm Asia/Dubai
By Konstantinos Anthis , Head of Market Research
China
Crude Oil
US Dollar

Demand for oil rises as global economic growth moves higher.

A report by the Strategic Studies department at ADS Securities stated that the rising growth in the United States and China is the main contributor to the increased demand for oil, which hit record levels not seen since 2014 and predicted that oil prices will continue to rise if economic growth continues at this positive pace.

The report pointed out that oil is considered as a basic raw material and it is involved in 95% of the economic activity. Therefore, despite the rise in US production, which reached the historic levels of 10.7 million barrels per day, US stocks are falling significantly reflecting the strength of demand. OPEC’s decision to cut production by 1.8 million barrels per day together with geopolitical factors are also key drivers supporting oil’s surge, still it’s the economic growth that remains the major contributor to the increased demand.

Moreover, the report noted that what is happening today in the economy of the United States is something unprecedented starting from qualitative economic developments to strong figures and data not seen for more than 20 years, especially with regards to the labor market – which is the main engine of demand for oil. In addition, the unemployment rate has declined to historic levels at 3.9%, leading to higher wages and thus a rise in purchasing power that supports the increased demand for oil as it again constitutes 95% of the economic activity.

Back in 2015, when oil prices hit $ 30 per barrel and the outlook was clearly negative, the Strategic Studies department issued a report confirming that oil prices would rally as a result of clear indications of demand from China and the United States. It was clear that there is no alternative to oil for the next 15 years and it would remain the basic raw material. Also, the report predicted that oil prices would reach $ 80 per barrel, and this is indeed what we see today.

The report indicates that the outlook for oil remains positive as the US Energy Agency expected an increase of demand by 1.7 million barrels in 2018, especially with China’s remarkable industrial and economic growth, with its gross domestic product exceeding expectations. Finally, we should remember here that China is the industrial engine of the world and the largest importer of oil. So, if the Chinese dragon continues at this pace, demand will rise significantly and so will the price of the barrel.

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