IEA cuts 2018 oil demand forecast in light of escalating prices

The International Energy Agency (IEA) has cut its forecast for oil demand growth in 2018 by 40,000 barrels to 1.4 million a day, as prices continue to ascend towards US$80 a barrel.

“The recent jump in oil prices will take its toll,” said the Paris-based agency in its monthly oil market report. “We expect a slowdown in [demand growth in the second half of the year] largely attributable to higher oil prices.”

“Crude oil prices have risen by nearly 75[%] since June 2017. It would be extraordinary if such a large jump did not affect demand growth,” it added.

Brent crude was trading at a three-year price high of near $78 a barrel in London on Wednesday, with the latest rally attributed to a series of geopolitical crises this year.

However, another key factor in the escalating prices has been the implementation of OPEC and Russia-led supply cuts aimed at clearing the global oil surplus of recent years.

This has resulted in inventories falling below their five-year average for the first time since 2014, said the IEA.

The agency advised that prices could get stronger still, as Iranian oil supply is faced with constraints from fresh US sanctions. In addition, Venezuela’s deteriorating oil output could also push prices higher.

“The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality.”