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Growth in the world’s oil use is slowing, the International Energy Agency said on Friday, even as traders’ fears of a supply shock have driven up prices by nearly a fifth this year.
The IEA now predicts that oil demand will increase by 1.2mn barrels per day (b/d) this year, a 130,000 b/d reduction on its previous monthly forecast. It said China’s oil demand had normalised after a post-Covid spurt and that a mild winter had moderated demand.
It also trimmed its growth forecast for 2025 to 1.1mn b/d, citing greater fuel efficiencies and more electric vehicles as a drag on oil growth.
The Paris-based group, which is largely funded by the OECD, is one of the most respected authorities on the oil market, but its predictions have sharply diverged from those of Opec, the oil producing cartel, which said on Thursday that it expected oil demand to rise by 2.2mn b/d this year and 1.8mn b/d in 2025.
Last September the IEA said the world was at “the beginning of the end” of the fossil fuel era, after it forecast for the first time that demand for oil would peak before 2030.
But its view has been repeatedly challenged, most recently by senior Republicans in the US Senate, who last month accused the IEA of “undermining energy security by discouraging sufficient investment in energy supplies”.
The latest forecasts come after three months of steadily rising oil prices, as traders fret that the conflicts in the Middle East and Ukraine could trigger a supply shock at a time when inventories of oil are at their lowest level for years. Brent crude, the international benchmark, rose 1.3 per cent to $90.96 a barrel while West Texas Intermediate, its US counterpart, added 1.6 per cent to $86.36 a barrel.
“All eyes this week have been on the impending Iranian response to the Israeli consulate attacks and the risk of a wider war that could see energy infrastructure caught in the crosshairs,” said Helima Croft, global head of commodity strategy at RBC Capital Markets. But she added there was also a risk that Ukraine would step up its attacks on Russian oil after successfully bombing a string of refineries last month.
Amrita Sen, founder of the research agency Energy Aspects, said prices had climbed as it became apparent that the world was heading into the peak summer season without as much oil in storage as usual to cushion the market.
“Every year we should build (stocks) in the first five months and then draw down in the summer. We haven’t this year. So if you believe that we are going to draw by 2.5mn b/d [in the summer] you need some form of resupply to fill that gap,” she said.
The world’s oil storage tanks are only about 52 per cent full, about 6 percentage points lower than the seasonal norm, according to data from Vortexa, which tracks energy markets. The IEA said land stocks were at “their lowest level since at least 2016”.
While more oil could come on line this summer from Opec, which next meets to discuss quotas in June, Sen predicted that oil prices would have to rise further first. “It is almost like a chess game that markets are playing with Opec,” she said.
With the US presidential election looming, the White House is also likely to ask Opec members to pump more oil, or choose to release oil from the US strategic petroleum reserve, if prices continue to climb.
The IEA report played down longer term supply concerns, saying that while the 22 countries in the wider Opec+ group had been cutting production, removing close to 2mn b/d from the market since the end of 2022, countries outside the cartel had been pumping significantly higher amounts.
It said that the additional oil from the US, Brazil, Guyana and Canada alone, which have seen record production levels, “could come close to meeting world oil demand growth for this year and next”.