Rising oil consumption for power generation in Europe and the Middle East will boost oil consumption for the rest of the year, the International Energy Agency said Thursday, as it raised its global demand forecast despite signs of a broader economic slowdown.
The Paris-based IEA, which is primarily funded by OECD members, said record natural gas prices in Europe sparked a “substantial” switch from gas to oil. It raised its demand forecast for 2022 by 380,000 barrels per day.
“These extraordinary gains, which are predominantly concentrated in the Middle East and Europe, mask relative weakness in other sectors but will boost demand by 2.1 million b/d to 99.7 million b/d by 2022 and by another 2.1 million b/d to 101.8 million b/d by 2023,” it said in its monthly oil report.
The EU’s commitment to cut member states’ gas consumption by 15 percent from August 2022 to March 2023 will increase oil demand by about 300,000 b/d over the next six quarters, it added.
The new outlook for demand came as the IEA said the impact of Western sanctions on Russian oil exports was less severe than previously forecast.
Russian exports of crude oil and oil products to Europe, the US, Japan and Korea had fallen by almost 2.2 million b/d since the start of the war in Ukraine, but the diversion of flows to countries such as India, China and Turkey, along with Russia’s seasonally higher domestic demand, had “limited losses upstream,” it said.
In July, Russian oil production was only 310,000 b/d below pre-war levels, while total oil exports fell by 580,000 b/d. As a result, Russia generated $19 billion in oil exports last month, down from $21 billion in June due to lower prices and slightly reduced volumes.
The EU embargo on Russian oil is likely to lead to further declines after it comes into full effect in February 2023, the IEA said. But a “possible easing of measures”, as suggested by some policymakers, had led to a revision of Russia’s production forecast for the second half of 2022 by 500,000 b/d and by 800,000 b/d for 2023.