The focus of oil markets over the last few months has been squarely on the potential for OPEC to cut supply. However, growth in demand will have just as big an impact on oil prices over the next year as all but the most ambitious OPEC production cuts. OECD oil demand grew rapidly in 2015 as prices remained low. However, most of the boost from cheap oil appears to have worn off. The average growth in consumption in the first eight months of this year was just 0.5%. Nonetheless, the IEA expects global demand growth this year to be 1.2m bpd (1.3%). This is largely thanks to growth in demand from emerging markets, including China. Indeed, car sales in China have surged this year as the government halved tax on small vehicles. Admittedly, this stimulus is due to expire at the end of the year when other stimulus measures will also be withdrawn. But the Chinese economy should still be growing relatively strongly in 2017, at least by Western standards, and the number of cars on Chinese roads should continue to increase rapidly, which will boost oil demand.
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