PARIS: Global oil demand will rise faster than expected as the world economic outlook improves, the International Energy Agency (IEA) said on Friday, warning that the crisis in Ukraine can still drag down overall consumption.
The latest demand estimate of 92.7 million barrels per day is an increase of 95,000 BPD above last month’s forecast, with emerging markets expected to provide most of the gain, the IEA added.
It is also the fourth straight month that the agency is raising its demand outlook.
“Growth momentum is expected to benefit from a more robust global economic backdrop,” said the IEA in its monthly oil market report.
“The pace of growth will likely build through the year, as underlying macroeconomic conditions improve, but the standoff in Ukraine has increased downside risk to the forecast,” it added.
Apart from a jump in prices on March 3, oil markets have been relatively calm despite the standoff between the West and Russia over Ukraine since February 22, when a wave of street protests ended up ousting Ukraine’s pro-Kremlin president Viktor Yanukovych.
Since then, Russian troops have seized control of Crimea, a small peninsula home to a mainly ethnic Russian population. The region will hold a referendum on Sunday to decide if it will join Russia or remain in Ukraine.
The IEA said, “one factor … is almost certainly the fact that Ukraine is not a major transit country for Russian-origin oil sold to the West.”
It added that both parties are “closely linked in a consumer-producer relationship that remains very important to both parties.”
In 2013, Europe received over a third or 36 percent of its net crude imports from Russia, which in turn relied on Europe for 71 percent of its crude exports.
An improving supply outlook has also offset fears of a disruption. In February, crude supplies from the Organization of Petroleum Exporting Countries (OPEC) breached the 30-million BPD a day mark for the first time in five months, as Iraqi output surged to 35-year highs.
Iraqi output had helped offset the ebbing supplies from Libya, where rebels are blockading oil terminals in the east.
Non-OPEC supplies are also expected to rise in 2014 by 1.7 million BPD—the highest rate of growth since at least the early 1990s, driven mainly by the United States and Canada.
Meanwhile, non-OPEC production also rose, up 100,000 BPD to 55.9 million BPD in February, led by higher output in North America.
However, demand in the United States—the world’s biggest consumer—is seen falling as the country continues to lower its dependence on oil.
Easing industrial growth in China is also having an impact on demand.
But Russia and Brazil are seen requiring more oil, with growth for Russia now forecast at 3.0 percent for the year instead of 2.7 percent.
Brazilian growth demand has also been raised to 2.8 percent from 2.7 percent previously.
“Brazilian transportation fuel gains have themselves been underpinned by the resilient, and seemingly now strengthening, consumer sector, as the Confederacao Nacional da Industria’s consumer confidence indicator depicted sentiment rising to an eight-month high of 113.9 in January,” the IEA said.