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IEA Lowers Global Oil Demand Forecast Due to Sluggish Economies in Developed Nations

The International Energy Agency (IEA) has revised down its global oil demand growth forecast for this year due to sluggish economies in developed nations. According to the Paris-based agency, world fuel consumption is now projected to increase by 2.2 million barrels per day, or about 2%, in 2023, which is a decrease of approximately 220,000 barrels from the previous month’s estimate. Despite the downward revision, demand is still expected to reach record levels later this year, leading to significant drawdowns in inventories during the second half.

The IEA attributed the pressure on global oil demand to the challenging economic environment, particularly the tightening of monetary policy and the sluggishness of industrial activity in the Organization for Economic Cooperation and Development (OECD) countries, especially in Europe.

For the first time in two months, crude oil prices increased above $80 per barrel in London on Wednesday, in part due to indications of slowing inflation that might prevent interest rates from rising further. Oil markets are tightening as Saudi Arabia and its OPEC+ allies continue to limit supplies while fuel consumption recovers from the effects of the pandemic.

While the demand outlook has weakened, the IEA stated that markets will not tighten as sharply as previously anticipated in the coming months. However, supply deficits are still expected throughout the rest of 2023 as global demand reaches a record high of 102.1 million barrels per day on average this year. China is projected to account for about 70% of the consumption growth, primarily driven by increased petrochemical usage.

Production within the OPEC+ alliance is expected to decline by 1 million barrels per day this month as Saudi Arabia implements further output cuts, bringing its production to a two-year low. The kingdom has committed to extending these reductions into August, and Russia, its ally, has also pledged to reduce exports.

Looking ahead to 2024, the IEA has raised its estimates for global consumption growth by 290,000 barrels per day, mainly due to an improved outlook for China’s gasoil usage. Nevertheless, the projected growth rate for next year stands at 1.1 million barrels per day, which is only half of the level expected for this year. This can be attributed to improved energy efficiency and the increasing popularity of electric vehicles.