IEA downgrades oil demand outlook amid Russia supply shortages
The International Energy Agency (IEA) said that oil demand growth for this year will be lower than expected as the prospect of large-scale disruptions in Russian crude production threatens to create a global oil supply shock.
In its latest monthly report the IEA laid bare the impact of the Ukraine war on the oil market as economic sanctions bite and buyers hold off.
The Paris-based agency cut its demand forecast for the second to fourth quarters of this year by 1.3 million barrels per day (bpd).
It noted surging commodity prices and sanctions on Russia "are expected to appreciably depress global economic growth" and impact inflation.
Global oil demand growth in 2022 will be 35% below previous forecasts, slashing it by 950,000 bpd to 2.1 million bpd to average 99.7 million bpd for the full year.
The downgrade marks the third year of demand below pre-COVID levels.
IEA expects Russian output to slump by a quarter in April, adding that three million bpd of Russian crude and products may go offline at the start of next month.
"We see a reduction in total exports of 2.5 million bpd, of which crude accounts for 1.5 million bpd and products 1 million bpd," it said. "These losses could deepen should bans or public censure accelerate."
Brent crude (BZ=F) rose 2.2% to $102.07 a barrel. US light crude (CL=F) was 1.5% higher to $97.87 in electronic trading on the New York Mercantile Exchange at the time of writing.
Higher prices "will also increase inflation, reduce household purchasing power and are likely to trigger policy reactions from central banks worldwide, with a strong negative impact on growth", it added.
The report comes as oil prices continue to fall this week after a tumultuous week of market volatility.
Crude prices posted their biggest weekly drop since November earlier this month, despite hitting their highest levels since 2008 as traders assessed the damage to global supply from the war.
Read more: How to save money on fuel costs
While the drop in prices has led to a cut in wholesale costs for fuel retailers, drivers are still feeling the impact at the pumps as fuel prices broke yet another record.
Fuel price movements in the UK are mainly determined by the price of crude oil, and the exchange rate between sterling and the US dollar as crude is traded in dollars.
The average cost of a litre of petrol at UK forecourts on Tuesday was 164.98p, while diesel was 176.04p, according to figures from RAC.
RAC fuel spokesman Simon Williams said "petrol has now gone up 13p since the start of the month and diesel by a nearly 21p" – both are the fastest rises on record.
He added: "We continue to remain hopeful that retailers will soon start to pass on recent reductions in the price of wholesale fuel to drivers when they next buy supply.
"That ought to lead to petrol stabilising at around 160p while diesel ought to stay where it is based on current wholesale prices.
“The big question is how keen will retailers be to pass on those savings at the pumps as they will no doubt be extremely conscious of protecting themselves from any more rises that could suddenly materialise.
Williams said that drivers will look to UK chancellor Rishi Sunak to cut duty or VAT in his Spring Statement. "One thing’s for sure simply reiterating that fuel duty has been frozen at 58p a litre simply isn’t going to cut it," he said.
Watch: Why are gas prices rising?