Oil’s retreat from almost $100 a barrel shows that prices climbed high enough to start eroding demand in the US and elsewhere, according to the International Energy Agency.
(Bloomberg) — Oil’s retreat from almost $100 a barrel shows that prices climbed high enough to start eroding demand in the US and elsewhere, according to the International Energy Agency.
“Supply fears gave way to deteriorating macroeconomic indicators and signs of demand destruction in the United States, where gasoline deliveries plunged to two-decade lows,” the IEA said in its monthly market report. “Demand destruction has hit emerging markets even harder, as currency effects and the removal of subsidies have amplified the rise in fuel prices.”
International crude benchmark Brent rallied to a 10-month high above $97 a barrel in late September, as Saudi Arabia and Russia squeezed supplies while global fuel consumption held near record levels. It has since retreated 12% amid concern “that ‘higher for longer’ interest rates could slow economic and demand growth,” said the Paris-based agency, which advises major economies.
Crude prices jumped on Monday as last weekend’s attack by Hamas on Israel sparked fears of a wider conflict with Iran, a major oil producer and key backer of the militant group. The commodity has subsided again, trading near $86 a barrel in London on Thursday.
“While there has been no direct impact on physical supply, markets will remain on tenterhooks,” the IEA said. The agency, which can oversee the release of emergency oil stockpiles, said it “stands ready to act if necessary to ensure markets remain adequately supplied.”
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Despite the initial signs of demand erosion, world fuel consumption remains on track to rise by 2.3 million barrels a day this year to a record 101.9 million barrels a day, driven by China. Inventories are set to drain sharply this quarter, with crude stocks having drawn down by a “massive” 102 million barrels in August to the lowest since 2017, according to the report.
Next year the global market will flip from deficit back into supply surplus, assuming that the Saudis and Russia unwind their latest production cutbacks. The OPEC+ leaders reaffirmed their close cooperation in the oil market on Thursday with a public show of unity at a major industry event in Moscow.
Demand growth will slump by more than 50% to just under 1 million barrels a day in 2024 amid improved fuel efficiency and the growing popularity of electric vehicles, the IEA predicts. That will be more than satisfied by rising supplies outside the OPEC+ alliance, which will increase by 1.7 million barrels a day.
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