Oil demand is set to hit a record high this year and the market is tightening but economic headwinds and interest rate hikes have deflated growth expectations slightly, the International Energy Agency (IEA) said on Thursday.
Still, the Paris-based energy watchdog sees demand growth next year rising by more than anticipated despite the rise being less than half that of this year.
“World oil demand is coming under pressure from the challenging economic environment, not least because of the dramatic tightening of monetary policy in many advanced and developing countries,” the IEA said in its monthly oil report.
While demand is expected to reach 102.1 million barrels per day (bpd), the Paris-based energy watchdog lowered its forecast for growth of the first time this year, by 220,000 barrels per day (bpd), to 2.2 million bpd.
The oil market is tightening, the IEA projected, with demand set to outstrip supply for the rest of 2023.
China is due to make up more than two-thirds of this year’s demand growth as its post-pandemic economic rebound is set to gain pace, especially later in the year, the IEA said.
Its recovery has gotten off to a slow start so far, however.
“China’s widely anticipated reopening has so far failed to extend beyond travel and services, with its economic recovery losing steam after the bounce earlier in the year,” the IEA said.
Demand in developed countries and especially Europe remains subdued as manufacturing slumps, with OECD developed countries on the continent due to register four consecutive quarters of contracting demand up to the final quarter of 2023.
Oil demand growth is set to halve next year to 1.1 million bpd, the IEA said, reflecting vehicle electrification and energy efficiency, though it raised its view from a 860,000 bpd rise it forecast last month.
A more robust global economic outlook next year and an expected increase in gasoil use in China accounted for the raised forecast, it said.