The International Energy Agency cut its forecast for global oil demand this year after China reimposed lockdowns to contain the spread of a resurgent coronavirus.
With the weaker demand outlook and the massive release of emergency oil reserves by IEA members, the agency now sees global markets in balance for much of the year. Crude prices have already lost most of their gains since Russia’s attack on Ukraine, to trade near $100 a barrel in New York on Wednesday.
“Prices are now back to (earlier) levels, but remain troublingly high and are a serious threat for the global economic outlook,” the IEA said in its monthly report. While the market looks balanced now, “the outlook is mired in uncertainty”.
The Paris-based agency, which advises most major economies, lowered projections for world fuel consumption this year by 260,000 barrels a day, with a particularly steep reduction of 925,000 a day for China in April. Still, global demand remains on track to increase this year.
The IEA also dialed back estimates for the loss of Russian supplies from an international boycott over its military aggression. Production in April may be 1.5 million barrels a day lower than the prior month - roughly half the drop that was previously expected. Those losses may still double in May, the IEA said.
Oil surged well above $100 a barrel following Russia’s attack on its neighbor. While prices have eased, they are still high enough to stoke inflationary pressures and exacerbate a cost-of-living crisis for millions of consumers. To counter this, IEA members announced last week that they will deploy 240 million barrels from emergency reserves, the biggest stockpile release in the agency’s history.
World oil consumption will expand by 1.9 million barrels a day to average 99.4 million a day this year, according to the IEA. China’s fierce “zero Covid” policy has diminished demand growth as millions are locked down in their homes, imports drop and business activity slows in the world’s second-biggest economy.
The IEA noted that Saudi Arabia and other members of the Organisation of Petroleum Exporting Countries have refused to open the taps faster, partly from a belief that markets didn’t face a genuine shortage.
OPEC+ members managed to provide 10 per cent of the supply increase scheduled for March, according to the IEA. The 19 coalition members, which have been engaged in a pact to stabilise markets since the start of the pandemic, added 40,000 barrels a day as diminished investment erodes production capacity across the group.