Oil demand is expected to fall – and prices could follow

Amid steadily rising oil prices, the International Energy Agency has suddenly warned that demand growth is slowing. Here’s why and what it could mean.

As oil prices have risen steadily over the past week – with benchmark Brent crude hitting US$114.10 a barrel – the International Energy Agency has sharply warned that growing oil demand was slowing down.

In his last Oil market reportThe IEA said growth in global oil demand in the second quarter is expected to slow to 1.9 million barrels per day (MMb/d) from 4.4 MMbbl/d in the first quarter.

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This is expected to decrease further to an average of 490,000 b/d in the second half of 2022 due to more moderate economic expansion and higher prices, resulting in an average increase of just 1.8 million b/d in 2022.

On the supply side, he noted that while Russia halted nearly 1 million bpd of production in April, bringing total global production down to 98.1 million bpd, volumes in steady increase from the Middle East, wider OPEC+ countries and the United States are “expected to head off an acute supply shortfall amid worsening Russian supply disruption.”

And while Germany has declared its intention to go it alone with a ban on Russian oil, several members of the European Union – all heavily dependent on Russian oil – have already signaled their opposition to any EU-wide ban. EU.

Taken together, there is a chance that this could push oil prices down.

And there’s more.

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Despite the noticeable lack of progress in reaching a new nuclear deal with Iran, the oil producer has indicated that it could significantly increase production.

Bloomberg quoted National Iranian Oil Co. chief executive Mohsen Khojastehmehr as saying Iran could easily double its exports if needed in order to recoup its share of the crude oil market.

If negotiations resume and come to a favorable conclusion, this could go a long way to allay concerns about falling Russian oil production and put further pressure on prices.

On the other hand, Chinese demand for oil may well rebound if Shanghai emerges from lockdown – a scenario that looks increasingly likely as the city experiences a sharp upturn in Covid cases.

Whether this will be enough to offset the expected slowdown in global demand is certainly up for debate.

This content first appeared on stockhead.com.au


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Originally published as Oil demand is set to fall – and that could fuel lower prices

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Felix J. Dixon