The IEA delivered a surprisingly downbeat outlook for oil demand in its monthly market report, showing an expected slowdown in consumption that was at odds with a more bullish view from the producer group OPEC on Monday.
A more widespread use of electric cars will not be enough to consign oil to the past, said the energy agency's executive director, Fatih Birol.
Brent crude oil prices dipped below $63 a barrel today as the International Energy Agency (IEA) revised its oil demand forecast down due to mild early winter temperatures and rising production from some countries.
In what could come as grim news for officials attending global climate talks in Bonn, Germany, the IEA expects oil demand to keep rising until 2040. The Paris-based watchdog casts doubt over the state of the sector, especially as a number of high-profile players such as Royal Dutch Shell Plc. and Total SA have reduced their exposure to Alberta.
Elsewhere, Canadian shale gas development will be a casualty of rapidly rising US production - not only delaying plans for offshore exports but even curtailing supply to its traditional market south of the border.
Despite the cautious sentiment, traders said oil prices were unlikely to fall far, largely due to supply restrictions led by the Organization of the Petroleum Exporting Countries and Russian Federation, which have helped reduce excess stockpiles. Scientists just this week said that emissions of the heat-trapping gas rose this year after three years of not growing. "We project a continuation of these trends: imports from Canada keep falling..."More news: Suspect arrested after stabbing at Mall of America
Climate activists said the IEA report is too negative, but added that it highlights the need for more action to combat climate change.
"The IEA slashing its oil demand growth forecast for this year and the next has dampened some of the bullish sentiment prevailing in the market", Abhishek Kumar, Senior Energy Analyst at Interfax Energy's Global Gas Analytics in London.
US oil prices have risen above $55 a barrel recently amid geopolitical tensions overseas, supply disruptions and an anticipated extension of OPEC's production cuts next year.
The U.S. shale surge could also mean an era of lower-for-longer oil prices.