The worst oil-supply crisis in decades is showing tentative signs of easing as flagging economic growth weighs on demand for crude while sanctions on Russia’s oil industry are having less impact on production than expected, the International Energy Agency said Wednesday.
The Paris-based agency cut its forecasts for oil demand for this year and next. Historically high prices for a barrel of oil were putting off consumers while weakening global economic growth–itself a product of high inflation and central-bank policies–was undermining demand, it said in its closely watched monthly oil-market report.
Meanwhile, U.S. and Canadian producers were leading an increase in global output, while sanctions on Russia’s oil industry were having less impact on its production levels than initially expected.
That combination was already showing signs of weighing on oil prices. Brent crude
the international oil benchmark, slumped 7.1% on Tuesday to $99.49 a barrel, bringing it close to its lowest level since the war in Ukraine began in February. The oil benchmark edged back up 1.1% on Wednesday to $100.54 a barrel.
Oil prices have soared this year, rising close to $130 a barrel in the immediate wake of Russia’s invasion of Ukraine. Major oil producers have been slow to raise output at the same pace as rebounding global demand. Western sanctions on Russia have cut off millions of barrels of oil from one of the world’s biggest oil exporters, though the country has sought alternative buyers in China and India.
Meanwhile, the Organization of the Petroleum Exporting Countries, a cartel of major oil producers, has struggled to meet its planned targets to gradually raise output. Analysts say the group’s members are close to pumping oil at their maximum capacity. The cartel’s leading member Saudi Arabia has been reluctant to increase its output to counter lost Russian oil. OPEC is allied with Russia and a group of other producers, in a grouping known as OPEC+.
Those high prices were beginning to deter demand for crude, the IEA said. The agency cut its demand forecast for the year by 240,000 barrels a day to 99.2 million barrels a day. Demand in 2023 will also be 280,000 barrels a day less than earlier forecasts at 101.3 million barrels a day, it said.
Still, the IEA expects the impact on demand to be modest as a rebound in the Chinese economy was helping offset lost oil demand elsewhere in the world.
Sanctions targeting Russia’s oil industry were also proving less damaging to the country’s oil production than expected while U.S. and Canadian output was increasing, the IEA said.
The agency raised its supply forecast for the year by 300,000 barrels a day to 100.1 million barrels a day. The IEA raised its forecast for Russian crude output this year by 240,000 barrels a day to 10.6 million barrels a day.
In June, global oil supply jumped by 690,000 barrels a day to 99.5 million barrels a day, largely due to better-than-expected Russian output.
While sanctions have weighed heavily on Russian oil exports, higher prices for oil meant Moscow was still earning significantly more than before the war, the IEA data showed. While the nation’s oil exports fell to their lowest level since August 2021 in June, Russian oil export revenues rose by $700 million to $20.4 billion, 40% more than the 2021 average.
The Organization of the Petroleum Exporting Countries, in its own oil-market report published Tuesday, offered a similar view of flagging economic growth and waning demand for oil.
OPEC said global growth would ease to 3.2% in 2023 from 3.5% this year as economies in Europe and the U.S. suffer most from soaring inflation and steps by central banks to raise interest rates.
Global oil demand growth would slow to 2.7 million barrels a day from 3.4 million barrels a day in 2022, OPEC said.
Write to Will Horner at firstname.lastname@example.org