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IEA: Mammoth Global Debt A Risk To Oil Demand

Russian rigs

The world’s combined huge debt level poses a risk to oil demand growth, the International Energy Agency (IEA) said on Tuesday, building upon International Monetary Fund (IMF) figures from last week.

The IMF said on October 5 that the global gross debt reached US$152 trillion in 2015, an all time-high, and warned that it could thwart the fragile economic recovery. In the current global environment of low growth and low interest rates, excessive debt sets a vicious loop in which “lower growth hampers deleveraging and the debt overhang exacerbates the slowdown”, the IMF said.

In its monthly report released today, the IEA said, as quoted by Reuters:

“If one believes futures prices, oil could continue to act as an inflationary pressure. Assuming the majority of other global price pressures remain deflationary, the current low inflation/low interest rate environment will most likely remain.”

Regarding oil demand growth, the IEA said that this year should see a 1.2-million barrel increase, and see the same rate of increase in 2017 as well. For the third quarter of this year, the IEA said that demand growth “slowed from a five-year high in the third quarter of 2015 to a four-year low in the third quarter of this year.”

The IEA has pinned its demand projections on the IMF global growth forecasts and warning that record global debt could undermine oil demand growth. “Hence, achieving the IMF's central 3.4 percent 2017 global economic growth forecast -- that underpins the demand forecasts carried in this report -- will not be clear sailing.”

Although signs emerge that the global oversupply begins to draw down, the market is likely to continue to be oversupplied through the first half of 2017, the IEA said. Should OPEC reach a deal to limit production and stick to its new quotas and targets, the market could rebalance faster, the agency noted.

By Tsvetana Paraskova for Oilprice.com

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