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IEA predicts higher European gas prices will drive higher oil use

Rising oil use for power generation in Europe and the Middle East will boost crude consumption for the rest of the year, the International Energy Agency said on Thursday, as it raised its demand forecast. globally despite signs of broader economic slowdown.

Based in Paris IEA, which is mainly funded by OECD members, said record European natural gas prices have accelerated the gas-to-oil transition “significantly”. It raised its demand forecast for 2022 by 380,000 bpd.

“These spikes, concentrated mainly in the Middle East and Europe, mask relative weakness in other sectors, but will push demand higher than 2.1 trillion bpd to 99, 7 quadrillion b/d by 2022 and an additional 2.1 bln b/d to 101.8 mb/d by 2023,” it said in its monthly oil report.

EU commitment to reduce member states’ gas consumption by 15% between August 2022 and March 2023 will increase oil demand around 300,000 bpd over the next six quarters, it added.

The new demand outlook comes as the IEA said the impact of Western sanctions on Russia’s oil exports has been less severe than previously forecast.

Russia’s exports of crude oil and oil products to Europe, the US, Japan and South Korea have fallen by nearly 2.2 million bpd since the start of the war in Ukraine, but the redirection of flows to the Countries including India, China and Turkey, along with seasonally higher Russian domestic demand, have “minimized damage upstream”, it said.

In July, Russia’s oil production was just 310,000 bpd below pre-war levels, while total oil exports fell by 580,000 bpd. As a result, Russia generated $19 billion in oil export revenue last month, down from $21 billion in June due to falling prices and slightly reduced volumes.

The IEA said the EU’s embargo on Russian oil is likely to continue to ease after it comes into full force in February 2023. But some policymakers “may have mitigation measures” ” led them to revise their Russian production forecasts for the second half of 2022 to 500,000 bpd and 800,000 bpd in 2023.

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