IEA cuts global oil demand outlook for 2023 as economy slows

GLOBAL oil demand will not grow as fast as previously expected this year due to the faltering economies of developed nations, the International Energy Agency (IEA) said.

World fuel consumption will increase by 2 per cent or 2.2 million barrels per day (bpd) in 2023. This is a reduction of about 220,000 barrels from last month’s forecast, the Paris-based agency said in a report on Thursday (Jul 13). Demand nonetheless remains on track to hit record levels later this year, draining inventories substantially in the second half.

“World oil demand is coming under pressure from the challenging economic environment, not least because of the dramatic tightening of monetary policy,” the IEA said. “Demand in the OECD, and Europe in particular, is languishing amid a grinding slowdown in industrial activity.”

Crude futures climbed above US$80 a barrel in London on Wednesday for the first time in two months, partly on signs that cooling inflation may help end the cycle of rising interest rates. World oil markets are tightening as Saudi Arabia and its partners in the Organization of the Petroleum Exporting Countries Plus (Opec+) curb supplies while fuel use continues to recover from the pandemic.

Markets have been fractionally oversupplied this quarter, with inventories at their highest level in almost two years. Supply restraint by the Saudis has been offset by other producers, such as Iran and the US, the IEA said. 

Given the weaker demand outlook, markets will not tighten as sharply in the months ahead as previously thought, according to the agency. Yet, the rest of 2023 will still be marked by supply deficits, as global demand increases to an all-time high of 102.1 million bpd on average this year. About 70 per cent of the growth in consumption will come from China as it expands petrochemical use. 

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Production in the Opec+ alliance is poised to slump by one million bpd this month as Saudi Arabia implements a new cutback that depletes its output to a two-year low. Last week, the kingdom pledged to prolong that reduction into August, and its ally Russia also promised to pare exports.

For 2024, the IEA boosted world consumption growth estimates by 290,000 bpd, as a stronger outlook for China stands to bolster gas oil use. Still, at 1.1 million bpd, the global growth rate for next year is barely half of this year’s level amid improved efficiency and the growing popularity of electric vehicles.