IEA further cuts its oil demand growth forecast for this year

The International Energy Agency (IEA) further lowered its forecast for oil demand growth this year in its regular monthly oil market report. The reason is lower energy consumption in OECD countries (Organisation for Economic Co-operation and Development), which include the Czech Republic. Oil prices fell by approximately 7% during the month.

According to the International Energy Agency, year-on-year oil demand growth is expected to average 1.1 million barrels per day (bpd). Its previous forecast put growth at 1.2 million bpd. Compared with its March report, the IEA cut its growth forecast by 140,000 bpd.

The main reasons are weaker industrial activity and a mild winter, which reduced demand for fuels used for heating. A year-on-year decline in energy demand can also be seen in the Czech Republic. For example, in April, demand for electricity fell by 4.9%, while the difference for natural gas, widely used for heating, is very significant—nearly 22%. It should be noted that April was very warm, and consumption adjusted to normal temperatures fell by “only” 3.8%. Last year's gas consumption was nevertheless the lowest since 1992.

The IEA report pointing to slower oil demand growth contrasts with the expectations of the OPEC cartel. OPEC has so far maintained its optimism and still sees demand rising by 2.25 million bpd. It expects a further year-on-year increase of 1.85 million bpd next year. The IEA puts growth in 2025 at closer to 1.2 million bpd.

Market concerns about a possible conflict between Iran and Israel are meanwhile easing, reducing fears about the impact on physical oil flows in the region. This, combined with weaker-than-expected demand, has allowed oil prices to fall to their current level of around USD 83/bbl for Brent crude. A month ago, oil was trading above USD 90/bbl.