Soaring oil use for power generation in Europe and the Middle East will boost crude consumption for the rest of the year, the International Energy Agency said on Thursday, as it increased its global demand forecast despite signs of a wider economic slowdown.
Paris-based IEA, which is primarily funded by OECD members, said record European prices for natural gas were spurring “substantial” gas-to-oil switching. It lifted its demand forecast for 2022 by 380,000 barrels a day.
“These extraordinary gains, overwhelmingly concentrated in the Middle East and Europe, mask relative weakness in other sectors, but will propel demand higher by 2.1mn b/d to 99.7mn b/d in 2022 and by a further 2.1mn b/d to 101.8mn b/d in 2023,” it said in its monthly oil report.
The EU’s commitment to reduce member countries’ gas consumption by 15 per cent from August 2022 to March 2023 will increase oil demand by roughly 300,000 b/d for the next six quarters, it added.
The new demand outlook came as the IEA said the impact of western sanctions on Russian oil exports had been less severe than it had previously forecast.
Russia’s exports of crude and oil products to Europe, the US, Japan and Korea had fallen by nearly 2.2mn b/d since the start of the war in Ukraine, but the rerouting of flows to countries including India, China and Turkey, along with seasonally higher Russian domestic demand, had “mitigated upstream losses”, it said.
In July, Russian oil production was only 310,000 b/d below prewar levels, while total oil exports were down 580,000 b/d. As a result, Russia generated oil export revenues of $19bn last month, down from $21bn in June due to lower prices and slightly reduced volumes.
The EU embargo on Russian oil is likely to result in further declines after it comes into full effect in February 2023, the IEA said. But a “possible softening of measures”, as suggested by some policymakers, had led it to revise up its Russian production forecast for the second half of 2022 by 500,000 b/d and by 800,000 b/d for 2023.