Asia's emerging markets, the key driver for global oil demand growth, are being hit hard by soaring crude prices and sliding currencies, raising red flags over expectations of further increases in consumption.
Import-reliant economies are already aching under oil prices that have risen above $80 per barrel this week, the most since late 2014.
Analysts warn the inflationary combination of higher oil costs and weakening currencies, including India's rupee, Indonesia's rupiah and the Philippine peso, could cause a global economic slowdown that would also crimp oil demand in those countries.
The rumblings of falling demand undermines the current market narrative that projects rising crude prices, in some cases to $100 a barrel, amid the loss of Iranian supply as the United States is set impose new sanctions on the country on Nov. 4.
"The currency exchange for those emerging economies is leading to expensive prices at the pump... We expect this will lead to lower demand growth in the region," said Keisuke Sadamori, director of energy markets and security at the International Energy Agency (IEA) this week.
Edward Morse, the global head of commodities at Citi Research, said the emerging market woes could shave 100,000 barrels per day (bpd) off oil demand growth in 2019.
The IEA currently expects global oil demand growth for 2018 and 2019 at 1.4 million bpd and 1.5 million bpd, respectively.
At $80 per barrel, Asia's oil import bill would breach $1 trillion a year, and few traders or analysts expect crude prices to ease.
For the lower income countries of emerging Asia, fuel prices are too expensive at those levels.
"We have already heard anecdotes from around the world that customers try to economise at the pump by downgrading their fuel consumption from high quality fuel to lower quality fuel to save the extra few bucks," said Janet Kong, chief executive of Integrated Supply and Trading Eastern Hemisphere at BP.
Record Fuel Prices
Global oil consumption is set to increase by 1.4 percent in 2018, according to the IEA. But that number may fall as Asian governments and consumers try to cut their oil costs.
In India, the world's third-biggest oil importer, refiners are considering the risky move of cutting back crude imports, hoping to use up stocks until prices fall back.
The currency's plunge has meant oil prices have risen nearly 50 percent in rupee terms this year.
Indonesia, Southeast Asia's biggest country and economy, increased its subsidy of diesel sold in fuel stations and its imports of lower quality gasoline.
The Philippines, another major Asian emerging economy, is allowing the sale of lower quality fuels to consumers to combat inflation, according to two trade sources.
When oil prices declined in 2014, many governments including India and Indonesia, increased fuel taxes or removed subsidies leading to record high retail fuel prices as crude prices rose.
The IEA's Sadamori said there is increasing pressure on some countries to re-introduce fossil fuel subsidies."That's something we are really concerned about," he added.