IEA Cuts Global Oil Demand Growth Forecast for First Time This Year

The IEA believes that, despite lowering expectations, demand is still expected to reach a record level later this year, and the oil market in the second half of the year is still characterized by a supply shortage...

The International Energy Agency (IEA) has lowered its global oil demand growth forecast for the first time this year, mainly due to a deteriorating economic outlook, with developed economies struggling, and stated that the growth rate of global oil demand this year will not be as fast as previously expected.

In a report from the Paris-based IEA, global oil demand is currently expected to increase by 2.2 million barrels per day in 2023, reaching an average of 102.1 million barrels per day, a reduction of about 220,000 barrels from last month's forecast. The agency stated:

"Persistent macroeconomic headwinds, particularly evident in the deepening downturn in manufacturing, have led us to lower our growth forecast for 2023 for the first time this year.

Global oil demand is under pressure from a challenging economic environment, especially due to the significant tightening of monetary policy in many developed and developing countries over the past 12 months."

Nevertheless, the IEA still stated that demand is expected to reach record levels later this year, leading to a significant drawdown of inventories in the second half of the year.

Looking ahead to next year, the IEA has raised its global consumption growth forecast by 290,000 barrels per day to 1.1 million barrels per day, as a more optimistic economic outlook in Asia is expected to boost gasoline consumption.

Nevertheless, due to improvements in efficiency and the increasing popularity of electric vehicles, this level of demand growth is only half of this year's.

Before the European plate on Thursday, Brent crude oil broke the $80 mark for the first time in two months, partly due to signs that cooling inflation may help the Federal Reserve end its rate hike cycle.

In addition, as some OPEC+ member countries cut production, the world oil market is tightening.The oil market was slightly oversupplied this quarter, with global crude oil inventories at their highest level in nearly two years. The IEA stated that Saudi Arabia's supply restrictions have been offset by other oil-producing countries such as Iran and the United States.

The agency said that, given the weakening demand outlook, the market will not tighten as much as previously expected in the coming months.

However, the remainder of 2023 will still be marked by a supply shortage, as global demand rises to a historical high of an average of 10.21 million barrels per day this year. Approximately 70% of the demand growth will come from China.

The OPEC+ alliance's production will decrease by 1 million barrels per day this month, as Saudi Arabia implements a new round of production cuts, bringing its output to the lowest level in two years. Last week, Saudi Arabia pledged to extend the production cuts until August, and its ally Russia also pledged to reduce exports.