Switch from gas boosts oil demand, but economic headwinds loom - IEA
The International Energy Agency (IEA) reported on Thursday that scorching summer temperatures and skyrocketing gas prices have increased the usage of oil in power generation, raising demand while concealing weakness in economies plagued by recession worries.
The Paris-based agency characterised the increase as a quirk of an energy market jittery about supply brought on by sanctions on Russia's oil and decades-high inflation that is already starting to reduce fuel use.
The agency's monthly oil report said that "natural gas and electricity prices have skyrocketed to new records, incentivizing gas-to-oil switching in several nations." The agency also increased its projection for 2022 demand by 380,000 barrels per day to 2.1 million barrels per day (BPD).
The IEA issued a warning: "These remarkable increases, which are primarily focused in the Middle East and Europe, conceal relative weakness in other areas.
It noted slower growth by year's end and decreased fuel use for road transportation in wealthy nations as factors that "match with more negative economic mood to forecast a significant 2H22 downturn."
According to the IEA, one of the few future signs of demand is a recovery in aviation travel.
With a slowing in growth from 5.1 million BPD at the start of the year to less than 100,000 BPD in the fourth quarter, it is expected that much of the demand growth for 2022 was concentrated earlier in the year.
Meanwhile, the IEA reported that Russia's exports fell by 115,000 BPD in July to 7.4 million BPD, a decline of just 600,000 BPD from the start of the year. This helped the world's oil supply in July surpass pre-pandemic highs.
The first IEA prediction after Russia's invasion of Ukraine on February 24 was that 3 million BPD of Russian oil might be restricted.
Because of reduced prices, Russian oil export receipts fell by $2 billion in July to $19 billion, and the IEA noted that China for the first time surpassed Europe as Russia's primary market for petroleum.