Turmoil in emerging markets due to the tapering of liquidity by the U.S. Federal Reserve is set to take its toll on global oil demand, according to the International Energy Agency (IEA), echoing concerns voiced by OPEC a day earlier.
The influential global energy research body announced on Thursday that it had adopted a more "conservative stance" for its oil demand forecasts for non-OECD (Organization for Economic Co-Operation and Development) countries in the first quarter of 2014.
(Read More: OPEC: EM currency rout could hit oil demand)
It shaved off 80,000 barrels per day from the first quarter non‐OECD demand estimate, citing currency weakness in many emerging‐market economies. Since the global financial crash of 2008, quantitative easing programs by the Federal Reserve have caused easy money to spread across the globe with investors in search of higher returns.
This liquidity has found its way into many emerging markets in recent years but with the Fed beginning to "taper" its bond purchasing, investors have returned their money to the U.S. at the expense of fragile emerging market currencies.
Russia, South Africa, Brazil, Turkey and Argentina are just some of the countries that have seen weakness in the currencies in January. Central banks in these countries have stepped in to try to manage these declines, but the IEA believes that this in turn could hurt oil demand going forward.
"The negative (first quarter of 2014) impact upon non‐OECD oil demand stems from the associated increase in the cost of doing business, as interest rates have been hiked in many countries in an effort to defend domestic currencies," the report, released on Thursday, said.
(Read More: US crude production continues relentless rise: IEA)