Tokyo — Current oil prices above $70/b are already starting to drag on global oil demand and threaten to soften demand growth forecasts this year, the International Energy Agency's executive director Fatih Birol said Friday.
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The recent ramp-up in oil prices is weighing on demand, especially as it is occurring in countries such as China, US and India, which are the world's biggest oil consumers, Birol said.
"The higher oil price environment may, if they stay around this level, also have an impact...put some downward pressure under demand growth," Birol told S&P Global Platts in an interview.
"So it will not be a surprise if we are to revise our demand numbers in the next edition of the oil market report if the prices remain at these levels."
In its latest monthly oil market report released this week, the IEA kept its estimates for global oil demand growth in 2019 unchanged at 1.4 million b/d, up from 1.3 million b/d in 2018.
But oil prices have jumped by more than 40% since late December, with ICE front-month Brent trading at a five-month high of over $71/b, supported by OPEC/non-OPEC production cuts and supply outages in Venezuela and Iran.
Rising oil prices could start to threaten oil demand in Asia, especially in a country like India, which is starting to feel the pinch more than others, Birol said.
India imports almost 80% of its crude requirements, and surging retail oil prices in the country are adding to inflation and increasing its fiscal woes.
"It will definitely hurt oil demand if it soared especially in the important demand growth centers such as India," Birol said. "This may well have implications for those demand growth centers around the world."
US oil demand growth in particular may not be as strong this year as it was in 2018 under the current oil price environment, Birol said.
"The US was not only the number one growth for oil production but [also] the number one growth for oil consumption," he added.
The risk of a price impact on oil demand is exacerbated by broader signs of a global slowdown in economic growth with indicators in China pointing to the weakest growth in the last three decades, Birol said.
"Just remember China was responsible for the half of global oil demand growth in the last 20 years. Therefore this may have an effect...on oil demand prospects," he said.
Earlier in the week, OPEC's research and analysis arm was even more pessimistic than the IEA, warning of slowing demand growth and lowering its estimate for global oil demand growth this year by 30,000 b/d to 1.21 million b/d due to "slower-than-expected economic activity."
The US Energy Information Administration on Tuesday predicted world consumption is expected to rise by 1.4 million b/d this year to average 101.38 million b/d.
Birol, however, said that supply risks caused by geopolitical uncertainties in countries such as Venezuela, Iran, Libya and Algeria were making him "nervous."
"Some developments in these countries [have] implications [for] oil markets and this may well push prices up if such developments occurred," he said.
Production in Venezuela has slumped dramatically as the Nicolas Maduro regime has come under pressure from US sanctions along with extensive power outages fueled by the country's worsening economic crisis. Iran, which is also under US sanctions, has seen its output fall steadily in the past seven months.
Africa's third largest producer, Libya, is descending into another round of armed conflict due to an escalation in violence between two rival armed political factions.
There are also concerns whether Algeria will experience a smooth political transition after President Abdelaziz Bouteflika resigned a few weeks ago.
Earlier in the day, Birol met with Japanese Prime Minister Shinzo Abe and he said the "government is expecting our contribution for a major hydrogen report to be a key topic for the G20 meeting in Japan."
"This hydrogen report will look at how we can make use of renewable energy and also the natural gas system in order to address the energy security and environmental issues," he added.
Japan is hosting the G20 summit in Osaka over June 28-29 after hosting the ministerial meeting on energy transitions and global environment for sustainable growth over June 15-16 at Karuizawa in Nagano prefecture.
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