The European crude oil market has unexpectedly become weak recently.
Although Europe has never been a key driver of the global crude oil market and its consumption has remained stable for most of the time, the significant decline in crude oil consumption in recent months may not bode well for the European economy as a whole.
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Most noteworthy, according to S&P, the rating company, crude oil consumption in Germany is declining sharply, with a year-on-year decline of 302,000 barrels per day in December, and a decline of more than 100,000 barrels per day in the 10th consecutive month from an annual perspective.
Just last November, Germany seemed to be the only European country with relatively strong demand for crude oil. But by December, Germany was also “occupied”. In the same month, consumption in France fell by 124,000 barrels a day, in the Netherlands by 85,000 barrels a day, in Italy by 38,000 barrels a day and in Britain by 36,000 barrels a day.
From the perspective of European countries belonging to OECD, overall crude oil demand fell by 755,000 barrels per day in December.
S&P believes that Europe is the biggest threat to global crude oil demand.
With the global economic slowdown, large international organizations and crude oil producers have lowered their expectations for global crude oil demand this year. OPEC cut crude oil demand by 50,000 barrels a day this year, and EIA cut by the same margin.
In the middle of this month, EIA lowered its global crude oil demand growth forecast of 50,000 barrels per day in 2019 to 1.49 million barrels per day year, and lowered its global crude oil demand growth forecast of 50,000 barrels per day in 2020 to 1.48 million barrels per day year.
The biggest question is whether the downward adjustment of crude oil demand expectations by major international organizations is a temporary adjustment or the beginning of more downward expectations.
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Prospects for Europe’s largest economy are declining
As Wall Street reported last week, the German Business Climate Index fell to 98.5 in February from 99.3 in January, a bigger decline than expected, with the market generally predicting 99. The lowest level since January 2015.
Meanwhile, the initial value of PMI in German manufacturing industry fell to 47.6 in February from 49.7 in January, a 74-month low, which was lower than the market expectation of 49.7. Germany’s manufacturing output index fell to 48.0 from 50.3 in January, a 74-month low. Export orders fell the most in more than six years.
Phil Smith, chief economist at IHS Markit, pointed out that factors contributing to the slowdown in German manufacturing orders included uncertainties in trade tensions, a weak automotive sector and growing competition within Europe.
Key economic data across the euro area are also disappointing. Industrial output in the euro area fell by 0.9% in December, twice as much as expected, and the biggest annual decline since 2009.
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