Switch from gas boosts oil demand, but economic headwinds loom — IEA

Sweltering summer temperatures and soaring gas prices have boosted the use of oil in power generation, the International Energy Agency (IEA) said on Thursday, increasing demand but masking weakness in
economies beset by recession fears.

“Natural gas and electricity prices have soared to new records, incentivising gas-to-oil switching in some countries,” the Paris-based agency said in its monthly oil report in which it raised its outlook for 2022 demand by 380,000 barrels per day (bpd).

“These extraordinary gains, overwhelmingly concentrated in the Middle East and Europe, mask relative weakness in other sectors,” the IEA warned.

It cited reduced use of fuels for road transport in developed countries and slowing growth by the year’s end “aligning with more negative economic sentiment to suggest a considerable 2H22 contraction”.

Meanwhile global oil supply in July broke past pre-pandemic highs, buoyed by higher-than-expected output by Russia, whose exports the IEA said fell by 115,000 bpd in July to 7.4 million bpd – a decline of just 600,000 bpd from the start of the year.

Russian oil export revenues were down $2 billion in July to $19 billion mostly because of lower prices, and the IEA flagged that China overtook Europe for the first time as the main destination for Russia’s crude.