IEA Reports Record Global Oil Demand, Potential Price Increase

The International Energy Agency has warned that rising oil prices are likely caused by the fact that global oil demand has climbed to a record level due to strong consumption in China and others.

The agency reported that global fuel consumption hit a record high of 103 million barrels per day in June and that this figure could go higher this month. As Saudi Arabia and its allies limit production, oil markets have tightened considerably.

“Oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation, and surging Chinese petrochemical activity,” said the IEA. “Crude and products inventories have drawn sharply” and “balances are set to tighten further into the autumn.”

The price of a barrel of oil in London has increased to over $88 this week, marking a six-month high due to rising demand for fuel following the pandemic and supply restrictions by the Saudi-led OPEC+ coalition. On Friday, Brent futures dropped slightly, trading at less than $87.

As remote work has become more common and countries have moved to transition away from fossil fuels in an effort to prevent fatal climate change, the three-year drop in global oil demand during the COVID-19 crisis has prompted theories that consumption may be close to a peak.

The IEA predicts that next year, global demand growth would roughly drop to 1 million barrels a day as a result of increased efficiency standards and the popularity of electric vehicles.

However, the tightening of global markets has resulted in developed economies’ oil stocks being around 115 million barrels below their five-year average, as stated in the research. Preliminary data seems to back up drops in July and August, and the IEA predicts a significant 1.7 million barrels a day decline in global stockpiles in the second half of the year.

Major consuming nations have warned that an additional inflationary increase might pressure consumers and undermine the global recovery, and have attacked the Saudis and their allies in OPEC+ for restricting supplies. But Saudi Arabia has indicated that it may further reduce spending if further action is required.

As a result of the Saudis’ unilateral cut of 1 million barrels per day, OPEC and its partners’ output fell last month to a two-year low. Russia, another coalition member, is doing the same thing and cutting back on exports.

“If the bloc’s current targets are maintained, oil inventories could draw” significantly, warned the agency warned, “with a risk of driving prices still higher.”