The International Energy Agency has slashed its global oil demand growth estimates for 2022 and 2023, citing the possibility of a recession in several European countries and increasing risks for emerging economies.
The Paris-based agency now expects oil demand to grow by 1.9 million barrels per day in 2022, down from its 2 million bpd projection in September.
The IEA also announced a steep cut in its 2023 projection, with oil demand growth now expected at 1.7 million bpd, 19 per cent lower than its previous estimate of 2.1 million bpd.
“Our revisions are underpinned by further downgrades to global GDP growth expectations from major institutions,” IEA said.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” it added.
Global crude oil stocks rebounded by 36.5 million barrels in August, while OECD oil stocks rose by 15 million barrels.
“They would have been significantly lower had it not been for the release of 185 million barrels of IEA member country government stocks from March through August,” the agency said.
The IEA's projections come a day after Opec lowered its global oil demand forecast for this year and the next, citing Covid-19 restrictions in China, economic challenges in Europe and inflationary pressures in key economies.
Inflation hit four-decade highs in the US and UK earlier this year and remains elevated while also shooting up to a record in Europe.
Opec now expects global oil demand to increase by 2.6 million barrels per day in 2022, lower than its previous estimate of 3.1 million bpd.
Brent, the benchmark for two thirds of the world’s oil, was trading about 1.69 per cent higher, at $94.14 a barrel at 8.37pm UAE time on Thursday. West Texas Intermediate, the gauge that tracks US crude, was up 1.84 per cent at $88.90 a barrel.
The war in Ukraine, now in its eight month, coupled with rising recession fears, broadening inflation pressures and a slowdown in China, both the world's second largest economy and importer of crude, prompted the International Monetary Fund to cut its global growth forecast for 2023.
Despite the worsening outlook for oil demand, supply is expected to remain tight going into 2023.
US shale producers, who have been quick to respond to oil price spikes in previous years, have been maintaining capital discipline as they grapple with higher costs and supply chain constraints.
“This casts doubt on suggestions that higher prices will necessarily balance the market through additional supply,” the IEA said.
“While previous large spikes in oil prices have spurred a strong investment response leading to greater supply from non-OPEC producers, this time may be different,” it added.
An Opec+ decision to cut supply by 2 million bpd pushed Brent up by about $14 a barrel before easing this week. The global benchmark is down about 6 per cent from Friday’s closing levels.
The EU embargo on Russian crude oil and product imports that come into effect in December 2022 and February 2023, respectively, will result in further production losses, IEA said.
“With less than two months to go before a ban on Russian crude oil imports comes into effect, EU countries have yet to diversify more than half of their pre-war import levels away from Russia,” the agency said.