Europe’s energy crisis expected to boost demand for oil as heat source

The Paris-based energy watchdog raised its forecasts for oil-demand growth for 2022 by 140,000 barrels a day to 2.3 million barrels a day. For 2023, the IEA also lifted its demand growth forecast by 100,000 barrels a day to 1.7 million barrels a day.

In a monthly market report, the IEA said global demand for gasoil—a fuel generally used to power industrial machinery—had exceeded its expectations in almost all parts of the globe. European nations, facing frigid temperatures, an acute energy crisis and high natural-gas prices, had seen a faster-than-expected switch to gasoil among manufacturers. Meanwhile, signs that China was set to ease its Covid-19 restrictions sooner than expected raised the IEA’s expectations for the nation’s oil demand.

The IEA’s optimism marks a modest improvement on the predominantly gloomy outlook surrounding demand that has pervaded the oil market in recent months. Despite continued tight supplies and fresh sanctions on Russia’s oil industry, which could further disrupt global crude flows, oil prices have fallen for the best part of six months as concerns about sluggish economies in Europe and China and rising interest rates in the U.S. have threatened to undermine demand.

Brent crude, the international oil benchmark, is down a third from its peak in June, and last week fell below $80 a barrel for the first time since January. On Wednesday, it rose 0.9% to $81.40 a barrel.

Europe’s efforts to find alternative fuel sources to replace lost Russian gas supplies were showing signs of progress, however, the IEA said.

“Europe’s manufacturing sector appeared to be weathering the gas crisis better than expected," the IEA said. “As the continent enters winter, there is nascent optimism due to the view that an immediate energy crisis, and thereby the deepest recession scenarios, will probably be averted."

Meanwhile, China’s steps to begin relaxing its Covid-19 lockdown measures had come earlier than expected, leading the IEA to bring forward when it expects Beijing to begin a full reopening of its economy from the second quarter of 2023 to the first.

For 2022, the IEA now expects total oil demand of 99.9 million barrels a day, 100,000 barrels a day more than it was expecting last month. For 2023, the agency expects total demand at 101.6 million barrels a day, 300,000 barrels a day more than last month’s forecast.

Less-developed economies that aren’t members of the Organization for Economic Cooperation and Development account for most of that extra demand, in part because of an improving picture for the Chinese economy, the IEA said.

Non-OECD demand would be 200,000 barrels a day stronger than forecast last month in both 2022 and 2023, the IEA said. The agency expects total non-OECD demand of 53.8 million barrels a day this year and 55.2 million barrels a day in 2023.

For OECD nations, the IEA kept its demand forecasts for 2022 steady at 46.1 million barrels a day as increased gasoil demand was countered by a drop in demand for naphtha, a feedstock for the petrochemical industry. For 2023, the IEA raised its OECD demand forecasts by 100,000 to 46.5 million barrels a day.

The IEA also lifted its forecast for global oil supplies. It added to its 2022 and 2023 forecasts each by 100,000 barrels a day, takings its predictions to 100 million barrels a day and 100.8 million barrels a day, respectively.

Nonetheless, the IEA said oil supply declined in November for the first time in five months, as major gulf oil producers—members of the Organization of the Petroleum Exporting Countries—reduced their output in line with the oil producers groups’ plan to reduce output.

This story has been published from a wire agency feed without modifications to the text