Oil Prices Keep Climbing As a Result Of Global Conflicts. The IEA Expects Demand To Drop More.

The International Energy Agency (IEA) expects for global oil demand to keep declining as global conflicts continue straining the global energy industry.

The agency said in its latest report that global demand will decline by 2.5 million barrels per day this year, 940,000 more than what it expected last month.

It went on to say that the main reason for the change is the "continuing impasse in negotiations between the United States and Iran delays the prospect of a normalisation of flows into next year."

"Losses will be concentrated in middle distillates and petrochemical feedstock products, especially in Asia. Oil demand is projected to recover by 2.6 mb/d in 2027, narrowly offsetting this year's losses," the IEA added.

Elsewhere, IEA noted that global oil inventories kept declining, falling by 95 million barrels last month. Cumulative draws have climbed to more than 500 million barrels since February, which amounts to 2.8 million barrels per day on average.

Energy prices have kept increasing over the past weeks as hostilities in the Middle East and Europe continue to escalate.

U.S. diesel prices have hit $6 for the first time ever as the wars in Iran and Ukraine drag on, straining the energy industry.

Data from AAA showed prices reached $6.0556 on Friday, compared to $3.7053 a year ago. Gas prices stood at $4.2950. Increased diesel prices can directly impact prices elsewhere considering it is used to transport goods across the country and elsewhere.

The Energy Information Administration raised its forecast for next year's prices on Thursday by more than 8% compared to the previous estimates. It now expects retail diesel prices to average $4.40 a gallon next year, compared to $4.07 in the last report.

The EIA said low distillate inventories, largely a result of the global conflicts, will be a primary driver of the increase.

So far American households have paid more than $760 in additional gasoline and diesel costs since the Iran war began in late February, according to an estimate from Brown University's Iran War Energy Cost Tracker. The nationwide increase had reached roughly $100 billion by Monday as fuel prices remained well above year-earlier levels. Brent crude, the international benchmark, stood above $104.5 per barrel on Friday.

Elsewhere, Iran-backed Houthi rebels reached the island of Perim in the Bab el-Mandeb Strait, a breakthrough that could help the group tighten its grip on the key shipping lane.

Hours earlier, the Houthis took the port city of Mokha, threatening maritime traffic further. The city is some 50 miles from the Bab el-Mandeb Strait, through which more than 12% of global oil transits, and to which several Gulf countries have resorted as the Strait of Hormuz remains largely closed as a result of the war between the U.S. and Iran.

Reuters noted that satellite images showed smoke near the Saudi East-West oil pipeline, through which the country has been rerouting exports from the Hormuz Strait.