Paris: The International Energy Agency on Friday further reduced its forecast for global oil demand this year, citing the recent escalation in the Mideast 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 per cent of global demand, saw prices in the United States surpass the $200/bbl (barrel) mark in early September, 94 per cent 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 El 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".
"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.
Stocks Tumble
Asian stocks sank on Friday after oil prices and bond yields spiked as the Middle East crisis stoked supply concerns and a forecast-topping US inflation report ramped up rate hike bets.
Crude prices dropped in afternoon trade, but they have soared around 30 per cent over the past week as the US and Iran exchanged strikes around the Strait of Hormuz. Tehran has also said it is prepared for a more intense conflict.
At the same time, Yemen's Ansar Allah have hit several Saudi Arabian energy targets in a drive towards another key waterway that could cut off a crucial alternative route for global energy.
Brent oil almost touched $110 per barrel on Friday — its highest since May — and the US benchmark West Texas Intermediate hit a peak of more than $104, last seen around the same time.
They later dropped more than one per cent on Friday but are well up from the $78 and $74 seen last week.
With the war showing no sign of ending, investors are bracing for another surge in inflation that will put pressure on central banks to tighten monetary policy further.
In turn, government bond yields have jumped again this week to levels last seen during the global financial crisis. The 30-year Treasury yield reached 5.36 per cent, a new post-2007 peak.
The 10-years are close to five per cent and nearly at a 19-year high.
Adding to pressure on bonds was a $6 billion government buyback that disappointed traders who had expected a bigger number.
The European Central Bank lifted rates on Thursday and warned of an extended period of rising prices and eyes are now on the Federal Reserve's policy meeting next week.
That comes after the release later on Friday of the US consumer price index, with a strong figure likely to force the policymakers to hike.
Cost Pressures
Investors see a more than 70 per cent chance that officials will opt for a quarter-point lift, according to CME Group's FedWatch tool.
The report comes a day after figures showed the producer price index accelerated to 5.4 in August, driven by energy prices. That was up from 4.8 per cent in July and more than expected. — Agencies
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