San Francisco Frontiers - IEA trims demand forecast as interest rates weigh on growth

The International Energy Agency now sees oil demand rising by 2.2 million barrels per days (mbd) this year, down from its previous forecast of an increase of 2.4 mbd.

Nevertheless, the Paris-based organisation which unites energy consuming nations, expects global demand to hit a record 102.1 mbd this year.

China will account for 70 percent of the global demand increase even though the rebound in its economy has appeared to falter.

"China's oil demand remained robust despite rising unemployment, renewed property market stress and a general slump in business and consumer sentiment," said the IEA in its regular monthly report on oil markets.

But it warned overall "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 over the past twelve months."

Central banks in leading industrial nations have jacked up interest rates in an effort to bring down inflation, but the higher borrowing costs suppress economic activity and risk provoking recessions that would lead to a drop in oil demand.

Such concerns have kept crude prices in check even though Saudi Arabia and fellow OPEC cartel nations along with their allies have limited or even cut output for the past year.

Their cuts have been largely offset by higher output from other producers, with oil supply still outpacing demand.

But the IEA warned "the oil market may soon see renewed volatility" as demand outpaces supply.

It noted global supply could tumble by more than 1 mbd this month as Saudi Arabia implements steeper cuts.

An IEA graph forecasts the oil market shifting from balance in the second quarter to demand outstripping supply for the rest of the year, with the draw on stocks hitting roughly two million barrels per day in the coming months.

K.Torres--SFF