IEA slashes oil demand forecast as prices surge

The International Energy Agency on Friday further reduced its forecast for global oil demand this year, citing the recent escalation in the Middle East war and resurgent energy prices.

The Paris-based agency now sees 2026 consumption falling by 2.5 million barrels per day from the last year, well above its August forecast of a 1.6 mb/d decline.

Crude prices have remained well above levels seen before the US and Israeli attacks on Iran in late February, sparking a war that has seen oil infrastructure damaged in several Gulf countries.

The IEA warned in particular of soaring diesel costs owing to refining constraints, with damage to facilities in the Gulf sharply curtailing supplies for the key industrial and transport fuel.

“Diesel/gasoil, which accounts for nearly 30% of global demand, saw prices in the US surpass the US$200/bbl (barrel) mark in early September, 94% above pre-war levels, with Europe and Asia not far behind,” the IEA said in its monthly report.

Ukrainian strikes on Russian refineries and other energy targets are also taking a toll, driving up global fuel prices that will lead consumers to reduce their purchases, the agency said.

It also warned of “renewed attacks in both the Gulf and the Red Sea’s Bab al-Mandeb choke point continuing to hamper the normalisation of oil flows, we have further cut our supply and demand projections for the remainder of the year.”

Houthi rebels in Yemen claimed Friday to have taken control of the Bab al-Mandeb strait, a crucial shipping lane for reaching the Suez Canal to Europe.

“The need for progress in resolving the conflict in the Middle East – and the Russia-Ukraine war, which is now in its fifth year – is greater than ever to avoid further market tightening and demand destruction,” the IEA said.