Mubasher: The International Energy Agency (IEA) lowered its projections for fuel demand this year and next due to mounting risks to global economic growth.

Moreover, the IEA warned that fading spare crude supplies would maintain oil prices at their high levels.

The energy watchdog lowered its estimate for oil demand growth across the world for this year and the next one by around 110,000 barrels per day (bpd) to 1.3 million and 1.4 million bpd, respectively. This came at the time when global demand and supply are approaching an unprecedented level of 100 million bpd.

The reduced estimate of consumption was driven by the International Monetary Fund (IMF) downgrading estimates for growth, trade conflicts and the strain of heated oil markets, the energy watchdog said in its monthly report.

However, with the supply from Venezuela and Iran continued to wane, the level of the remaining spare production capacity elsewhere reaches only 2% of global fuel demand and probably would shrink further, the Paris-headquartered agency said.

“For many developing countries, higher international prices coincide with currencies depreciating against the US dollar, so the threat of economic damage is more acute,” the agency said, noting “expensive energy is back” and it threatens economic growth.

The IEA’s revision to its forecasts came after the agency’s executive director Fatih Birol warned earlier this week that prices are heading for “the red zone,” posing risks to consumption, while urging members of the Organization of Petroleum Exporting Countries (OPEC) to ramp up output.

The producer group’s latest report revealed that Saudi Arabia, Libya and other major member states are already raising their production to offset shortage led mainly by falling supplies from Venezuela and Iran.

In addition, what is known as OPEC+ alliance, including Russia, pushed 1.6 million bpd since last May, the report showed.

As a result, stockpiles were reloaded and it seems that markets were sufficiently supplied for the time being, the IEA said.

Nevertheless, it is recognized that moves by producers to step up production have drained spare supplies which are kept aside for outages and emergencies, mostly in Saudi Arabia.

As the agency expected that the oil-rich nation could increase by around 12%, it remains unclear for how long this would be sustained.

The market supply would be tested in the forthcoming months as US sanctions against Iran kick in, it said, noting that output from Tehran already fell to the steepest level in more than two years.

“This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy,” the agency said.

By 11:15 am GMT, global benchmark Brent crude rose 0.49% to $80.65 per barrel (pb), while US Nymex crude climbed 0.73% to $71.49 pb.